Do you like the sound of a dividend stock with an expected yield of 8.6%, and with analysts also expecting the stock price to rise by 21%?

Me too. What I'm talking about is Taylor Wimpey (LSE: TW.), which has been going through a difficult period over the past few years.

Price targets

There is a very strong buy consensus for Taylor Wimpey shares at the moment, with an average price target of 132p. From a price of 109p at the time of writing, this indicates an increase of 21%. These goals tend to be short-term as well, and forecasts through 2027 are optimistic about earnings. So perhaps we should expect more gains in the future.

Analysts expect a 75% rise in earnings per share between 2024 and 2027. Based on today's stock price, that suggests a price-to-earnings (P/E) ratio of just 10 by 2027.

This seems very cheap to me, especially for a stock that offers such an amazing dividend yield. So why aren't investors quick to snap up cheap Taylor Wimpey shares and push prices higher? Well, it looks like things are likely to get more difficult before they get better.

Weaker demand

The October 1 trading update was decent, with the company confirming its guidance for between 10,400 and 10,800 completions in the UK this year. But we also heard about “Market conditions are softer starting in the second quarterThe number of outlets is expected to decrease slightly by the end of the year.

Analysts expect earnings per share to decline this year, and will not cover expected profits. Speaking of profits, they expect them to decline slightly between now and 2027 – but not by much.

This matches this year's interim payout, which was reduced to 4.67p per share from the 4.8p paid midway in 2024. But even the slightly lower dividend expected through 2027 would still yield 8.3% on today's share price. I see a lot of margin of safety in that.

Beat the pros

The outlook for interest rates remains uncertain. Yes, inflation in September was better than expected. But at 3.8%, we still have a long way to go.

So the outlook for the next year or two is more uncertain than I would really like, as an investor in homebuilders – I bought Persimmon Share a while ago.

But I think this gives private investors a huge advantage over the big City companies. The uncertain short-term outlook could keep them away, for fear of ending the year with stocks holding down.

Long term outlook

But we can simply ignore all that, without having to care about what our short-term portfolio allocation might look like. Even if Taylor Wimpey's return to growth may take longer than we hoped, it doesn't matter.

I think any investor who sees good long-term value here in a sector with a strong future – as I do – should consider buying Taylor Wimpey shares. If I wasn't in this sector already, Taylor Wimpey would be my choice. I might still buy some, the temptation is strong.