This stock has a long track record of paying good dividends, and that’s exactly what I want for building long-term passive income.
But the shares have been gaining in the past few months, so do I need to act fast?
Dividend stock
What is the stock I seem to like so much? I’m talking about Taylor Wimpey (LSE: TW.), the FTSE 100 house builder.
The pandemic took its toll, and the dividend was cut for 2019. And just as it’s coming back, we have a property slump caused by soaring inflation and interest rates.
But, with Taylor Wimpey shares down 32% in five years, the forecast dividend yield still stands at a tasty 7.9%.
Profit recovery
Forecasts show profits reaching a low for 2023. But after that, analysts think they’ll start to rise again.
Will the UK housing market get back to strength, once inflation is beaten and interest rates are back down again? I mean, it’s got to, right?
Demand for homes has been rising for decades, and supply hasn’t kept up. We’re not out of the dark yet, though.
Dividend risk
There’s a risk dividends could be cut before things get back to normal. And that could send the Taylor Wimpey share price down again.
But I’m thinking of holding for 10 or 20 years, or more. In that time, how much passive income could an investor build up?
Let’s think about investing a whole year’s Stocks and Shares ISA allowance in Taylor Wimpey. That would buy around 17,000 shares at today’s price.
And 7.9% of that in dividends would be £1,580 per year. So I could start with £131 a month in year one.
Compound magic
But what if I buy more shares with my dividends each year?
That could grow my original £20k into £91,500 in 20 years. At the same dividend yield, I could then bag £7,228 a year cash. And that’s where my £602 monthly passive income could come from.
Will this actually happen? Well, not exactly like this, that’s for sure. And that’s for a few reasons.
Things change
The Taylor Wimpey share price and dividend are not going to stay the same. If the share price rises, I can’t buy as many new shares with the same dividend cash. And the dividend yield would drop too.
But then, if dividends grow along with earnings, I could have more cash to buy more shares each year. And it could help keep the yield up.
I could end up with a decent profit from long-term share price growth too.
Final thought
I can’t possibly predict what will actually happen, so this is just a ‘what if’ thing using today’s numbers.
But there’s one way I can boost my eventual passive income. I can keep investing new money each year, rather than plonking down a one-off sum and waiting. That could make a big difference.
So will I buy Taylor Wimpey? I already hold house builder shares, and I think diversification is important. But I might just add a few to my ISA.
