I purchased Taylor Wimpey (LSE: TW) shares on two events final month and I’m eager to go for the hat-trick, however I’m additionally a bit of bit cautious. There are such a lot of issues I like concerning the FTSE 100 housebuilder, however there are main dangers too.

Let’s begin with the positives. I purchased Taylor Wimpey as a result of I like investing in high quality blue-chips when their shares are out of favour and low-cost because of this. Particularly if the autumn isn’t the corporate’s fault, as is the case right here.

Tons to love

Taylor Wimpey is definitely low-cost, buying and selling at simply 5.6 occasions earnings. It additionally comes with an ultra-high yield of 9%, which I at all times discover arduous to withstand.

Whereas the group faces critical challenges, this isn’t all the way down to unhealthy administration. Like the remainder of the housebuilding sector, it’s on the mercy of rising rates of interest and distressing occasions within the Center East.

Britons are nonetheless determined to purchase houses and Taylor Wimpey can’t construct them quick sufficient. In regular occasions the demand/provide imbalance would work in favour of the producer, however these aren’t regular occasions.

Buyers spent most of 2023 assuming rates of interest would peak within the autumn and fall subsequent spring. In consequence, the Taylor Wimpey share worth is definitely up 16.67% over one yr. Optimism is now fading because the ‘greater for longer’ rate of interest mantra takes maintain. The shares are down 14.38% over six months and 5.63% during the last week.

Up to now home costs have solely fallen by round 5%, though after inflation that’s an actual phrases drop of round 12%. That is hitting revenues, which crashed 21.2% within the first half of 2023. Revenue earlier than tax fell virtually 29% to £237.7m.

I Purchased Taylor Wimpey on 1 September for 114p and once more on 29 September for 124p. With the inventory now buying and selling at 104p I’m down round 12% general. Now I’m questioning whether or not to common down and purchase extra.

Troublesome occasions

Equities bought off final week over fears the Israel-Hamas battle might unfold. I’ve no concept what’s going to occur within the Center East. No person is aware of. The one factor I can do when shopping for shares is have a look at firm fundamentals, and right here Taylor Wimpey appears to be like fairly stable.

In 2022, revenues rose 3.15% to £4.4bn with pre-tax revenue up 33.5% to £907.9m. The primary half of 2023 was harder, inevitably, with revenues crashing 21.2% to £1.64bn and income down 29% to £237.7m. That pattern is prone to proceed.

But administration is pleased with its “sturdy” steadiness sheet and Taylor Wimpey ended H1 with web money of £654.9m, up from £642.4m a yr earlier.

Whereas I fear concerning the short-term share worth volatility, my main concern is whether or not the dividend is safe. In an encouraging signal, administration bumped up the interim fee from 4.62p per share to 4.79p in August. The forecast yield for 2023 appears to be like regular at 8.9% however dividend cowl is forecast to halve from precisely twice earnings to simply as soon as. If immediately’s malaise drags on, it might come underneath stress.

I nonetheless discover Taylor Wimpey shares arduous to withstand and plan to common down over the subsequent few days. If it does crash afterwards, I’ll most likely reply by shopping for much more.