I want to boost my passive income stream and I think one FTSE 100 stock that can help me do this is Taylor Wimpey (LSE:TW). Here’s what I’m doing now.
Burgeoning market
Taylor Wimpey is one of the UK’s biggest housebuilders. It also has operations and developments in Spain. It currently works through 23 regional businesses with a nationwide presence and builds a range of houses, from luxury developments to affordable housing.
The housebuilding market is booming. This is due to the fact the demand for homes is still outstripping supply. With this in mind, builders such as Taylor Wimpey could capitalise on favourable market conditions to continue growing, and in turn, provide lucrative returns.
Yet as I write, the shares are trading for 128p. At this time last year, they were 183p, which is a 30% decline over a 12-month period.
Passive income stocks have risks
The share price decline shows there are clearly risks. The first risk of any dividend stock is that dividends are paid at the discretion of the business and can be cancelled at any time. For example when the pandemic and market crash struck, many companies cancelled their dividends.
There are several macroeconomic headwinds that could hinder the firm as well (and many other housebuilders too). Soaring inflation and the rising cost of raw materials could squeeze profit margins. This could then affect the bottom line and dividend payouts. The supply chain crisis has also affected many building sites. When developments are delayed, so are sales. This has a knock-on effect for revenue and profit. Dividends are underpinned by performance, so this is a major risk currently.
Why I like the shares
At current levels, the shares look dirt-cheap to me. They’re on a price-to-earnings ratio of just 8 and the FTSE 100 average ratio is 15. The general consensus is that a ratio below this figure represents value for money.
The shares look cheap, but how much passive income could I make? Well, for this I need to know the dividend yield. Again, looking at the FTSE 100 average, which is 3%-4%, we have something to compare. Taylor Wimpey shares currently sport a juicy dividend yield of close to 7%, nearly double the index average.
In order for me to receive dividend payments, however, I need to ensure performance is stable and growing. Looking back, revenue grew between 2018 and 2019. In 2020 it pulled back due to the pandemic and its effects. But 2021 results were positive and revenue and profit increased from pandemic-affected 2020 levels. I understand that past performance is not a guarantee of the future, though.
Overall I think Taylor Wimpey shares are a good option to help me boost my passive income stream. The shares yield nearly double the FTSE 100 average and are currently dirt-cheap. I’d add them to my holdings at current levels and expect to receive regular dividend payments for the foreseeable future based on a favourable housing market here in the UK.
