A drop of 17% per month and a return of 7.39%! Is this FTSE 100 stock a screaming buy for me?

Even hard FTS 100 stocks with a strong balance sheet, modest valuation, generous yield and solid earnings outlook could fail as the homebuilder Taylor Wimpey (LSE: TW) is showing us at the moment.

The Taylor Wimpey share price has fallen 17.73% over the past month. I’m holding the stock and it hurts. Over 12 months, it grew by just 2.77%.

I bought Taylor Wimpey shares three times last year and they were a success for a while. I grew over 40% and received an excess return of 7%. Then everything went wrong.

Why are stocks crashing?

I rate Taylor Wimpey highly because I’m impressed that its balance sheet and share price have remained relatively stable throughout the pandemic and cost of living crisis.

While revenues inevitably fell in 2020, they recovered quickly. They fell again in 2023, but investors held on in the hope that inflation and interest rates would follow at some point, making mortgages much cheaper.

On November 7, the board reaffirmed its 2024 forecast as demand and availability improved. The company is expected to hit the top end of its target of 9,500 to 10,000 new homes, with operating profits in line with current market expectations of £416 million.

This fell from £473.8m in 2023 on the back of fewer completed projects, but the order book rose from £1.9bn to £2.2bn excluding joint ventures.

Still, the October 30 budget suffered. Chancellor Rachel Reeves’ decision to pass on £25 billion of extra national insurance contributions to employers will cut into Taylor Wimpey’s profits. It is predicted that next year their share will decrease from 13.3% to 12%. A shortage of skilled labor can also push up wages.

In addition, the Bank of England forecasts that the budget will push inflation back to 3% in 2025, and mortgage lenders are raising rates.

I will support split income and hope for growth

US President-elect Donald Trump’s policies are also expected to be inflationary, adding to concerns about interest rates. Higher inflation will also increase Taylor Wimpey’s input costs.

On the other hand, Labour’s plans to build 1.5 million homes over five years look a little hopeful. Ironically, this could support Taylor Wimpey by limiting the supply of properties at a time of sky-high demand.

I think the shares are reasonably priced, trading at 12.8 times earnings. This is still a terrific dividend stock. The 2024 yield is 7.34%, and analysts expect it to reach 7.56% in 2025. As this chart shows, her track record is pretty solid.

TradingView Chart

The 16 analysts offering one-year share price forecasts have a median target of 167.65p. If this is true, then this is 29.32% more than today. That would be great.

Interestingly, the range of recommendations is not so wide. An impressive 12 people rate Taylor Wimpey as a Strong Buy, with two calling it a Buy and two calling it a Hold. Nobody is offering to sell. I certainly don’t consider this myself. I would also call this a strong buy.

If I didn’t already have a large stake, I would take this opportunity to buy more in the long term. Britain needs houses and I think I need dividend growth shares like Taylor Wimpey.