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As an old school and income investor, I like to buy and own stocks that offer high dividend yield. However, as a veteran of nearly four decades in the financial markets, I am wary of very high (double-digit) returns. And I saw one in mid-cap FTSE 250 index that looks at risk. Read on to find out which…
Dividend stress
For those unfamiliar with the term, dividends are cash payments made by other companies to their owners (shareholders). However, not all listed businesses pay dividends. Some companies are making losses and therefore have no surplus to distribute. Some firms prefer to reinvest their current profits to fuel future growth.
Another problem is that future benefits are not guaranteed. In times of crisis, they may be terminated or canceled at short notice. Indeed, this happened repeatedly during the 2020/21 Covid-19 pandemic.
Although most of the companies are members of the elite FTSE 100 The index do pay dividends, not the FTSE 250. However, my family portfolio is full of dividend paying stocks in both indexes. In addition, I am always on the lookout for new dividend dynamos to add to our existing holdings.
What did Taylor do?
Shares in a British house builder Taylor Wimpey (LSE: TW.) offers one of the highest dividend yields of the FTSE 350. However I can’t help but think that this flood of cash may be slowing down a bit.
As I write, Taylor Wimpey shares are trading at 78.9p, valuing the group at just under £2.8bn. That’s too much for the FTSE 250, but nowhere near enough to join the FTSE 100. And on Tuesday (28 April), the share price fell to 78.45p – levels not seen since early 2013 (13 years ago). Yes.
At these low levels, this stock has provided a trailing dividend yield approaching 9.7% per year. At first glance, this seems like a rich reward for buying and holding these stocks, but this sweet payout is unlikely to last.
Hard times
In a trading statement issued yesterday, Taylor Wimpey reported the lowest weekly sales of new homes, and the order book was 5% lower at £2.2bn. Also, the US war with Iran is likely to increase construction costs later this year, also hitting Taylor Wimpey’s profitability.
The final dividend was recently cut from 4.66p in 2025 to 2.95p in 2026. With these savings, the company will buy back more of its own shares. Maybe not a bad idea, given their low rating? The company may also cut its interim dividend this fiscal year, cutting that nearly 10% annual profit to something more affordable.
I have argued against buying Taylor Wimpey shares many times in 2025/26. I’m glad I stopped, as this stock is down 9.7% over one month and 27% over six months. It also fell 32.7% in one year and crashed 55.9% in five years. (All returns do not include dividends.)
For me, this episode confirms one market lesson that I know all too well from experience. Share gains that outperform the market can sometimes be undermined by share price declines. That’s why I tend to avoid stocks with stagnant or unsustainable dividend payments. In short, what I gain on one hand, I can sometimes lose on the other!
