I’m targeting £23,441 in annual dividend income from my £20,000 in this FTSE 100 high-yield star!
Taylor Wimpey (LSE: TW) is now one of the most compelling highâyield opportunities in the FTSE 100, in my view. The housebuilder offers one of the highest dividend returns in any FTSE index — of 8.7%. By comparison, the FTSE 100âs average yield is 3.2% and the FTSE 250âs is 3.5%.
Crucially, this income profile sits alongside the potential for meaningful capital gains. Specifically, the shares trade at a significant discount to their âfair valueâ. It is in this gap that big, long-term profits can be made, as asset prices tend to converge to their fair value over time.
All of this is powered by exceptional average annual earnings growth forecasts.
So, should I buy more of the stock right now?
Earnings forecasts
Risks to Taylor Wimpeyâs earnings growth are sticky inflation and/or a delay in further interestârate cuts, which can soften demand.
However, consensus analystsâ forecasts are that the companyâs earnings will grow by a stunning 28.9% a year to end-2028.
Recent results go a long way toward supporting that view. Its H1 2025 numbers showed revenue rise 9% year on year, while home completions jumped 11% to 5,264. The company said it would hit 10,400-10,800 UK completions this year, up from 9,972 in 2024.
This guidance was reiterated in its 12 November trading update. Taylor Wimpey also confirmed it expects to deliver an operating profit of around £424m this year, against £416m last year.
Reflecting growth in the share price
A discounted cash flow analysis pinpoints where any firmâs share price should trade, based on cash flow forecasts for the underlying business. These, in turn, factor in consensus analystsâ earnings forecasts.
Another strength of this approach is that it produces âcleanâ standalone valuations. These are unaffected by any under- or over-valuation across a business sector as a whole.
In Taylor Wimpeyâs case, the numbers are striking. They show the shares are an eye-catching 53% undervalued at their current £1.09 price. That’s based on this growth outlook and my calculations. That implies a fair value of £2.32 to me.
How much can I make from here?
My current £20,000 holding could make me £27,589 in dividends after 10 years. This assumes an average 8.7% over the period, although dividend yields can go down as well as up. It also assumes that I reinvest the dividends paid back into the stock. This is known as âdividend compoundingâ — a similar idea to leaving interest to accrue in a bank account.
On that basis, the dividends could rise to £249,432 after 30 years, which I see as the standard investment cycle. This begins at around 20 years old and ends at about 50 — or some variation thereof.
By that point, the holding would be worth £269,432 (including the initial £20,000). And this would be paying £23,441 in annual dividend income! But of course, as I said, none of that is guaranteed.
My investment view
Taylor Wimpeyâs high yield, what I see as its large discount to fair value and strong earnings growth are why I bought the stock initially.
As these factors remain intact and look well supported by recent results, I plan to buy more shares soon.
On the same basis, I believe the stock merits serious consideration from longâterm, incomeâfocused investors.
The post Iâm targeting £23,441 in annual dividend income from my £20,000 in this FTSE 100 high-yield star! appeared first on The Motley Fool UK.
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More reading
- Down 35% with an 8.75% yield and P/E of 12.8! Are Taylor Wimpey shares a generational bargain?Â
- Prediction: analysts reckon Taylor Wimpey shares will soar almost 25% in 2026. Seriously?
- A 9% yield and now this! Check out the stunning Taylor Wimpey share price forecast for 2026
- Is a 9% yield from one of the UK’s most reliable dividend shares too good to be true?
- Is the 102p Taylor Wimpey share price a generational bargain?
Simon Watkins has positions in Taylor Wimpey Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
