Stock market

Here’s how much income I’d get if I invested all my ISA in Taylor Wimpey shares.

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My Stocks and Shares ISA is a perfect home for my long-term investments. This is also a place where I hold some income stocks, as dividends are not taxed. My full ISA allowance for this year is £20k. If I decide to allocate it all Taylor Wempe (LSE:TW) shares, here’s what it could bring.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any tax advice. Readers are responsible for doing their own due diligence and seeking professional advice before making any investment decisions.

Why a homebuilder makes sense.

The reason I decided to invest in Taylor Wempe is the generous profit yield. At 6.8%, it is currently one of the higher yielding options. FTSE 100. Profits were temporarily cut during the pandemic, but otherwise it has a solid track record of paying consistent income over decades.

One of the reasons why dividends have been paid for so long is the nature of the business. As a homebuilder, it has a forward order book so it can plan and execute projects that may take years to materialize. Interestingly, in its 2023 report, it said it had potential earnings of £61bn on both its short-term land bank and strategic pipeline.

Of course, not all of this translates into cold, hard income. But the ability for a firm to sense what the outlook is in terms of demand allows it to pay earnings with confidence.

Economic cycle

Over the past year, the property sector has been out of favour. This didn’t surprise me too much, as it follows the normal economic cycle. During times when interest rates are raised, mortgages are more expensive and property prices stagnate, or fall.

Yet some forget that this is what happens as part of the cycle. Typically, interest rates fall, property buyers regain confidence and demand resumes.

The risk for me to buy now would be that interest rates would hold for too long, which would hurt the share price. Yet the stock is up 12 percent over the past year, suggesting some investors are already looking forward to better times ahead.

show me the money

If I invested the full ISA £20k in Taylor Wimpey shares today, I would stand to make £1,360 in passive income over the next year. This assumes that the dividend payments during the previous year are the same in the coming year. Naturally, this may not be the case, as it may be more or less.

The benefit of compounding means that if I took £1,360 and bought more Taylor Wimpey shares, my income would increase. For example, after five years, my income could reach £1,908 without investing another penny.

I don’t have the money to implement this plan right now. I would only be willing to do this if I had a large portfolio where £20k didn’t give me too much focus on just a few stocks. Still in principle, I like the idea of ​​buying Taylor Wimpey stock for income going forward.

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