The FTSE 100‘s chock-full of stocks paying passive income. Today, I’m looking at two examples to consider buying. Both recently updated the market and offer seriously big (if never guaranteed) dividend streams for risk-tolerant Fool followers.
Tepid trading
Shares in housebuilder Taylor Wimpey (LSE: TW) are down 18% year-to-date. Not only does this performance leave a lot to be desired, it also drastically lags the index itself.
But this slip also makes sense. The housing market isn’t exactly on fire and affordability continues to be an issue. Backing this up, the firm’s latest half-year reports contained little to cheer about.
While an 11% increase in completions (5,264 homes) helped boost revenue 9% to £1.66bn, the company is clearly struggling to grow profit. In fact, management was forced to report a pre-tax loss of just over £92m due to extra charges relating to cladding fire safety and defective workmanship by contractors.
Even without these headwinds, the £3.8bn-cap faces ongoing cost inflation which can’t be offset by increasing prices.
But the dividends are massive
Yesterday (30 July), the company announced an interim dividend of 4.67p per share. That’s down from the 4.8p per share awarded this time last year. However, analysts have previously estimated that the total payout for FY25 will be 9.37p per share.
If this came to pass, it would mean a monster dividend yield of 9.3%. By comparison, the average yield in the FTSE 100 is ‘just’ 3.3%.
My chief concern is that profit isn’t expected to cover this payout. This could push Taylor Wimpey to make a more serious cut if trading doesn’t improve soon. But even if this were to happen, it’s likely that dividends will still be above average.
I also think the ongoing undersupply of housing in the UK makes an investment like this a great long-term buy, so long holders remain patient.
Owning other income stocks would undoubtedly ease the pressure.
Another passive income powerhouse
At least some of that diversification might come from another high-yielding stock like miner Rio Tinto (LSE: RIO). Not only does it operate in a different sector, it also serves far more markets that the aforementioned housebuilder.
As things stand, Rio’s stock has a forecast yield of 5.8% for this year — still chunky enough to appeal if generating passive income were the primary goal. Importantly, profit’s expected to cover the cash distributed to shareholders.
This isn’t to say the company’s in a purple patch of trading. In fact, Rio reported a 16% decline in first-half underlying earnings on Wednesday (30 July). At least part of this was down to lower iron ore prices — a big part of its business.
The future’s green
Even so, the long-term outlook remains positive. Rio’s presence in copper and lithium markets bodes particularly well given that demand for both is set to surge in the next few decades as the world transitions to cleaner forms of energy.
But investors might not need to wait this long. Signs of economic recovery in key markets like China could be sufficient to put the shares on the front foot.
The price might remain volatile in the interim but the dividends should continue to flow.
