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

Typical street lined with terraced houses and parked cars

My Stocks and Shares ISA is a great home for my long-term investments. It’s also a place where I keep some income stocks, as the dividends don’t incur tax. My full ISA allowance for this year is £20k. If I decided allocate all of it to Taylor Wimpey (LSE:TW) shares, here’s what it could yield.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Why a homebuilder makes sense

The reason why I might decide to invest in Taylor Wimpey is due to the generous dividend yield. At 6.8%, it’s currently one of the higher-yielding options in the FTSE 100. The dividend was temporarily cut during the pandemic, but aside from this it has a solid track record of paying out constant income for several decades.

One reason why the dividend’s been paid for so long is due to the nature of the business. As a homebuilder, it has a forward order book so it can plan and execute on projects that can take several years to come to fruition. Interestingly, in its 2023 report, it said it had £61bn of potential revenue across both the its short-term landbank and strategic pipeline.

Of course, not all of this translates into cold, hard revenue. But the ability for the firm to get a feel for what the outlook’s like in terms of demand allows it to pay out income with confidence.

The economic cycle

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

Yet some forget this is what happens as part of the cycle. Normally, interest rates fall, property buyers come back with confidence and demand resumes.

The risk in me buying now would be that interest rates stay higher for longer, hurting the share price. Yet the stock’s up 12% over the past year, indicating that some investors are already looking ahead to better times.

Show me the money

If I invested the full ISA £20k today in Taylor Wimpey shares, I’d stand to make £1,360 in passive income over the next year. This assumes the dividend payments over the past year are the same in the coming one. Naturally, this might not be the case, as it could be higher or lower.

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

I don’t have the money to put this plan into action right now. I’d only be keen to do this if I had a large portfolio where £20k didn’t make me overly concentrated on just a few stocks. Yet in principle, I like the idea of buying Taylor Wimpey stock for income going forward.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.