As an old-school value and income investor, I love buying and owning stocks that offer generous dividend yields. However, as a veteran of almost forty years in the financial markets, I am concerned about ultra-high (double-digit) monetary gains. And I noticed one in mid-cap FTSE250 risk analysis index. Read on to find out which…

Dividend problems

For those unfamiliar with the term, dividends are cash payments made by some companies to their owners (shareholders). However, not all listed companies pay dividends. Some companies generate losses and therefore lack free cash to distribute. Other companies prefer to reinvest their current profits to stimulate future growth.

Another problem is that future dividends are not guaranteed. In tough times, they can be cut or canceled at low notice. Indeed, this has happened repeatedly during the Covid-19 pandemic in 2020/21.

Although most member companies are elite FTSE100 indices pay dividends, this is not the case with the FTSE 250. However, my family portfolio includes companies paying dividends from both indices. Furthermore, I am always on the lookout for recent dividend dynamos to add to our existing holdings.

Taken by Taylor?

Shares in a British construction company Taylor Wimpey (LSE:TW.) offer one of the highest dividend yields in the FTSE 350. However, I can’t facilitate but think that this flood of cash could turn into a trickle.

As I write this, Taylor Wimpey shares are trading at 78.9p, valuing the group at just under £2.8 billion. That’s quite high for the FTSE 250, but not high enough to join the FTSE 100. On Tuesday (April 28), the share price fell to as low as 78.45p – a level not seen since the beginning of 2013 (13 years ago). Yes.

At such low levels, the company’s shares offered a dividend yield of almost 9.7% per year. At first glance, this seems like a opulent reward for buying and patiently holding on to these shares, but it’s unlikely that this juicy payout will continue.

Hard times

In a trading statement published yesterday, Taylor Wimpey reported lower weekly recent home sales and a 5% lower order book at £2.2 billion. Additionally, the US-Iran war will likely drive up construction costs later this year, further reducing Taylor Wimpey’s profit margins.

The final dividend has just been reduced from P4.66 in 2025 to P2.95 in 2026. Thanks to this saving, the company will buy back more of its own shares. Maybe this isn’t a bad idea considering their low rating? The company may also reduce its interim dividend for this financial year, bringing the nearly 10% annual yield down to something more affordable.

I have often considered buying shares in Taylor Wimpey in the 2025/26 season. I’m glad I held off because this stock is down 9.7% in one month and 27% in six months. It also fell 32.7% in one year and crashed 55.9% in five years. (All profits exclude dividends.)

For me, this episode reinforces one market lesson I know all too well from experience. Market-high dividend yields can sometimes be seriously undermined by keen declines in share prices. That’s why I try to avoid stocks where dividend payments are stagnant or unsustainable. In low, what I gain in one hand, I may sometimes lose in the other!