8.1% dividend yield! Should I buy this FTSE 100 value stock in Q4?

I’m scouring the FTSE 100 for the best value stocks to buy during the final months of 2023. And Taylor Wimpey (LSE:TW) — a share I already own — has grabbed my attention again because of big dividend yields.

At 8.1% for 2023, the housebuilder’s dividend yield smashes the index average of 3.8%.

It also trades on a forward price-to-earnings (P/E) ratio of 12 times. This is below a corresponding average of 14 times for FTSE shares.

So should I increase my holdings in the blue-chip builder?

Mixed bag

The British housing market is experiencing a downturn not seen since the 2007-08 financial crisis. Yet the share prices of many residential construction companies have remained remarkably resilient. In fact, Taylor Wimpey’s has risen more than 10% in the year to date.

It’s gained more ground on Monday following solid half-year results from industry peer Vistry Group. The FTSE 250 firm said that total completions and adjusted revenues rose 32% and 31% respectively between January and June. Adjusted operating profit increased 4% despite a fall in margins.

However, I’m not getting carried away following Vistry’s latest trading statement. The firm’s focus on affordable housing gives it more stability than the broader sector during tough times like these. Besides, the bulk of market updates from the builders paint a picture of an industry under significant pressure.

Taylor Wimpey’s own sales plummeted 21% in the first half while operating profit dipped 45% as completions slipped.

More pain on the way?

If latest industry data is to be believed things are set to get a lot tougher for the homebuilders too. Major lenders Halifax and Nationwide have both said average property values sank at their sharpest rate since 2009 in August.

Some experts predict property prices won’t begin to rise again until the end of 2024 as inflation cools and the Bank of England cuts rates again.

As a consequence, Taylor Wimpey’s long record of paying above-average dividends may come under increasing threat. Its balance sheet remains strong but, with sales of its new-builds cooling, net cash dropped to £654.9m at the start of July from £863.8m at the end of 2022.

The FTSE firm has cautioned that cash could fall by another £150m or so by close of this year. It has guided for net cash of £500m-£650m by the end of December.

So how are dividends looking?

Encouragingly, Taylor Wimpey raised the interim dividend to 4.79p per share from 4.62p previously. The company’s view that full-year completions would come in at the top end of forecasts helped the payment move higher.

This is a positive sign that the company will meet the 9.4p per share dividend City analysts are expecting for the whole year. That’s even though this predicted payout is higher than estimated earnings of 9.2p.

Yet I’m not convinced Taylor Wimpey will be able to pay another 9.4p reward in 2024 as forecasts suggest. Earnings are expected to come in around the same level. Meanwhile, its balance sheet could keep eroding if demand for new-build properties remain weak.

I plan to hold my Taylor Wimpey shares as the long-term outlook for home prices remains robust. However, the high chance that dividends could disappoint from next year means I’d rather buy other value stocks for passive income in 2024.