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Why does Neil Woodford like Taylor Wimpey?


Fund manager Neil Woodford is a big fan of UK house builder Taylor Wimpey: he is the largest single shareholder with over 3% of the available stock held in his funds. But what are the attractions for investors in Taylor Wimpey shares?

Taylor Wimpey is a stock that is favoured by fund managers that are looking for income. The company follows a simple business model, developing housing projects. It is pretty religious in making sure it keeps shareholders happy and is a regular dividend payer.

Will land costs hit Taylor Wimpey shares?

There have been some concerns surrounding Taylor Wimpey recently. Some analysts are worried that land and other costs are going to start eating into Taylor Wimpey’s profit margin. The company showed an adjusted profit margin of 21.2% last year and net cash was reported at £511.8 million. Analysts reckon that Taylor Wimpey can show a net profit of somewhere in the £700 million region for 2018, which would be great.

Investors won’t like it if Taylor Wimpey shares see their dividend cut, but that does not look likely to happen at the moment. UK house prices have been continuing to climb and we are not likely to see the credit-inspired slow down in new home building that occurred in 2009.

If you’re after a decent income stock, then Taylor Wimpey shares do look like one of the better options in the leading UK listed stocks at the moment. There is a cash-rich balance sheet and a likely dividend yield in the 8-8.4% range.

Not a growth stock

Taylor Wimpey is not a growth stock, however. It would be hard to make any capital gains off this company. The Taylor Wimpey share price sat at 193 a year ago and it’s at 185 today. The stock has been trading in a range between 211 and 174 over the last 12 months and the market really can’t seem to make up its mind about this one.

Morgan Stanley set an overweight rating for Taylor Wimpey last week although Numeris Securities has cut the stock to a hold.

Taylor Wimpey has also slashed its directors’ bonuses by more than 20% following a scandal over the leasehold terms the company was included with some of the new homes it was selling. This meant that the ground rent doubled every 10 years, making it very hard to sell the house onwards. Hopefully there are no other skeletons of this nature lurking in Taylor Wimpey’s closet.

The Armchair Trader says:

Taylor Wimpey is a good stock to hold if you are following an income strategy for your share portfolio. However the shares don’t seem to do as well as some of the other house builders out there. Analysts seem to be more excited by the likes of Redrow, which produced some fantastic results in February. If you are after growth, look elsewhere than Taylor Wimpey.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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