If the Taylor Wimpey (LSE: TW) share price was a house, I wouldn’t buy it. It’s got a severe case of subsidence right now, having fallen 45% over the past five years, with a 20% slide in the last year alone.

Plenty of investors have parted with their money though, me included. They thought the FTSE 100 housebuilder was a bargain, but every time the stock appeared to stabilise, it was hit by another earth tremor. So is it time to move on?

Writing for The Motley Fool, I’ve learned not to abandon a share just because it’s out of favour with the wider market. In fact, that’s often a trigger for me to buy. Troubled companies often bounce back stronger, but it can take time. That’s certainly the case here.

Can this FTSE 100 straggler fight back?

Taylor Wimpey’s share price struggles reflects a challenging environment for UK housebuilders. 

Rising mortgage rates have hit affordability, while broader economic uncertainty cools demand. The cost-of-living crisis has driven up the cost of materials, and post-pandemic supply chain challenges linger. 

On 16 January, Taylor Wimpey confirmed the impact. UK completions fell to 9,972 last year, down from 10,356 in 2023. The overall average selling price slipped to £319,000, from £324,000.

On paper, Taylor Wimpey shares look like a bargain. With a price-to-earnings (P/E) ratio below 12, the stock is cheaper than the average FTSE 100 P/E of around 15 times. Its trailing dividend yield of 8.1% is eye-catching, offering a significantly higher income than cash, bonds and most FTSE 100 stocks.

Dividend payouts hinge on profitability, and Taylor Wimpey risks margin compression as sales shrink and costs rise. Upcoming national insurance hikes for employers won’t help, nor will the increased minimum wage. 

The group does boast a robust balance sheet and ended 2024 with a £2bn order book, but maintaining such a generous yield might become challenging if market conditions deteriorate further. The forecast yield of 8.6% is covered just once by earnings, worryingly. Taylor Wimpey has a good track record of dividend increases, but nothing is guaranteed.

Can the dividend compensate for lost growth?

So can the share price recover? The 16 analysts offering one-year share price forecasts have produced a median target of just over 148p. If correct, that’s an increase of around 25% from today. Combined with that yield, it would give investors a total return of 33% if true. Seems optimistic to me, but we’ll see.

The UK does face a chronic under supply of housing. This should support demand while that fat order book brings visibility.

What Taylor Wimpey shares really need is a string of interest rate cuts. That would shrink mortgage rates, revive the economy and ease cost pressures too. It would also make that dividend look even better, relative to yields on cash and bonds.

In my view, this isn’t game over for Taylor Wimpey. But investors tempted by that yield must realise this is a volatile sector on the front line of every economic issue. The share price is actually lower than it was 10 years ago. Even the brilliant dividend cannot totally compensate for that. Despite my concerns, I’ll play on. I still think it’s a winner over time.