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I think this 8%+ dividend yield from the FTSE 100 is far too cheap. I might buy more!

Royston Wild
Stack of new bank notes

As an enthusiastic owner of shares in Britain’s housebuilders, I spend a lot of my time talking about these firms’ exceptional long-term investment appeal. Fortunately though, the London Stock Exchange’s listed homebuilders continue to make my life pretty easy!

Fresh trading results from Persimmon today, for instance, revealed just how resilient demand for new-build property has been in the UK. Despite ongoing uncertainty concerning Brexit, allied with the builder’s decision to scale back production rates amid quality issues, total forward sales were broadly robust at £1.36bn as of the end of December.

The FTSE 100 firm commented that “resilient consumer confidence… supported by low interest rates, a competitive mortgage market, and robust employment levels” helped to drive business across its regional businesses in 2019. And with the same factors still very much in place (hopes of an interest rate cut have even picked up in recent days), it looks as if 2020 could prove another solid year for Persimmon and its peers.

Sales surge

This brings me neatly to a share that I myself own: Taylor Wimpey (LSE: TW). This is a business that has also furnished the market with impressive trading details of late, the blue-chip saying on Tuesday that, “despite an uncertain political and economic backdrop in 2019, we have continued to experience a good level of demand for our homes and trading in the second half of the year was as anticipated.”

The Footsie firm said that it expected completions to have risen 5% last year to 15,719 units, with the average selling prices on private homes increasing 1% to £305,000 and the overall average selling price rising 2% to £269,000.

In a positive omen for 2020, the construction play added that its total order book stood at record levels at the close of December. At a value of £2.18bn, consolidated forward sales comprised a whopping 9,725 homes, rising from readings of £1.78bn and 8,304 homes at the end of 2019.

And to put the cherry on top of the cake, Taylor Wimpey said that while cost inflation rose around 4.5% last year, it noted that cost pressures have eased  in recent months, giving further reason for investors to be optimistic for this year.

Cheap as chips

I was expecting an encouraging trading release and I wasn’t disappointed. Taylor Wimpey has been one of the FTSE 100’s better performers since the beginning of December, up 21% versus the 4% gain enjoyed by the broader index. And it has continued to climb following that bubbly update, hitting fresh record peaks above 210p per share in mid-week trading.

A quick look at broker forecasts for the company would suggest that it has much further to rise too. Predictions of a 1% earnings rise in 2020 (a figure I reckon could be significantly upgraded as the months roll on) leaves Taylor Wimpey trading on a forward P/E ratio of 10.3 times, some way below the broader Footsie average of 14.5 times.

Moreover, Taylor Wimpey’s 8.7% dividend yield for 2020 slices the corresponding FTSE 100 average of 4.8% to ribbons. There’s no shortage of great-value dividend shares to buy today, though on the basis of these numbers, I reckon Taylor Wimpey is one of the best.

The post I think this 8%+ dividend yield from the FTSE 100 is far too cheap. I might buy more! appeared first on The Motley Fool UK.

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Royston Wild owns shares of Taylor Wimpey. 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.

Motley Fool UK 2020