Taylor Wimpey, can they build a solid foundation?

Taylor Wimpey, one of the largest UK housebuilders, listed on the London Stock Exchange in 2007. The company was formed through a merger of Taylor Woodrow Ltd and George Wimpey. The company suffered this last decade, taking a huge hit in 2008 after the financial crisis. Their share price dropped from around 700p to about 15p in the space of a few weeks, and the company looked as if it was on the brink of collapse. Now, it’s my choice for a steady growth stock to hold for the next 5 years.

Taylor Wimpey has perfectly positioned itself in a market that is desperately gasping for suppliers. With the government drumming up new initiatives to provide young buyers with the tools to purchase houses, the builders can’t soak up the demand fast enough, and it shows. Taylor Wimpey have had a staggering past 5 years, with their revenue increasing by at least £400 million per year, and their profits following a similar trajectory. The only blip came in this current year, where their revenue increased but profit fell. This would normally raise an eyebrow among investors, especially in the generally over inflated market that we currently live in. However, Taylor Wimpey amongst others, were caught up in the ‘Ground rent’ scam. They sold houses to people, but then also sold the land underneath them to third party companies. These companies then charged excessive rates and would often force people out of their homes. However, as you would imagine, this was quickly resolved and now those housing producers have to pay for these contracts to be transferred onto a new kind of affordable lease. This is where the profit hit comes from, and the reason their provisions went from £5million to £75million this year. Once this transfer has finished, this cost will be passed over onto those third party contractors that enforce the lease.

Therefore, the company has recently taken a hit to its share price because of the market’s pessimism over the short term drop in profit, a scandal that’s coming to an end. Underneath this what we really have, is a strong company coming into a starved market with huge levels of demand. The company has also shown this through its dividend, which has grown every year for the past 5 years, even after it’s taken a hit to its profit. Therefore, I think it’s time to pick up Taylor Wimpey Ltd, and let it build the foundations for your portfolio.

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