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Should I buy these cheap FTSE 100 stocks for a passive income?

Screen of price moves in the FTSE 100

Dividend stocks are a great way of generating a decent passive income. And I think 8.9%-yielding Taylor Wimpey (LSE: TW) could be one of the best FTSE 100 stocks to buy to make a lot of cash. It’s why I already own the housebuilder in my Stocks and Shares ISA today.

Make no mistake, the chronic supply and demand imbalance that’s driving property prices to the stars isn’t going to be cured any time soon. Government has talked tough on creating 300,000 new homes a year by the middle of the decade.

But signs are growing that it’ll miss this target by some distance. At the same time, a blend of low interest rates and Help to Buy support for first-time buyers is electrifying homebuyer demand.

All this bodes well for Taylor Wimpey’s profit margins looking ahead. Yet it’s my opinion that the builder’s P/E ratio of 8.9 times for 2022 fails to reflect this bright outlook. I’d buy the business even though spiralling building material costs pose a risk to earnings.

8.9% dividend yields!

Imperial Brands (LSE: IMB) also seems to offer terrific value for money. Its 8.9% dividend yield for the financial year ending September 2022 puts it in the top five FTSE 100 biggest yielders. On top of this, the tobacco titan trades on a forward P/E ratio of just 6.4 times.

For my money though, Imperial Brands has the hallmarks of a classic value trap. The business might be able to keep paying big dividends in the short term. But I don’t like its credentials as a way to generate a long-term passive income, given the uncertain outlook for its end markets. The global fight against tobacco continues to heat up and New Zealand just announced plans to outlaw the sale of tobacco to young people.

It’s possible that Imperial Brands’ decision to manufacture vaping products could offset the steady decline of its traditional combustible goods. But this isn’t a chance I’m willing to take.

Another FTSE 100 dividend hero

There’s no question that Rio Tinto (LSE: RIO) carries an element of risk for investors like me. I am worried by signs that the economic rebound following coronavirus-battered 2020 is running out of steam. This could have serious implications for commodities demand in the near term and beyond.

Still, it’s my opinion that Rio Tinto’s share price bakes in these threats. For 2022, the mining giant trades on a P/E ratio of 7.2 times. This is well inside the widely-regarded value sector of 10 times and below.

The main attraction of Rio Tinto to me is its 9.8% dividend yield for next year. Yields could fall back from these elevated levels if the global economy indeed begins to cool.

But I still think the FTSE 100 firm could remain a brilliant way make a passive income as rising investment in green technology kicks off a new commodities supercycle. I think Rio Tinto’s profits could soar as demand for its copper, lithium, borates and the like picks up.

The post Should I buy these cheap FTSE 100 stocks for a passive income? appeared first on The Motley Fool UK.

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Royston Wild owns Taylor Wimpey. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.