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Here’s a FTSE 100 stock that can make a nice passive income!

macro shot of computer monitor with FTSE 100 stock market data in trading application

Taylor Wimpey (LSE:TW) is a FTSE 100 stock with a juicy dividend yield that could make me a nice passive income. Should I add the shares to my portfolio? Let’s take a look.

FTSE 100 house builder

Taylor Wimpey is one of the UK’s largest house builders and has operations in Spain too. It operates through 23 regional businesses and has a nationwide presence. The company builds a range of houses from affordable housing to more luxury developments.

As I write, the Taylor Wimpey share price is 168p. At this time last year, shares were trading for 156p, which is a 7% return across a 12-month period. The FTSE 100 dividend yield average is 3%. Taylor Wimpey’s current dividend yield is close to THREE times that at 8.9%, which is enticing. Dividends are by no means guaranteed, however. They are intrinsically linked with the performance of a company and can be cancelled at any time, affecting any passive income I hope to make.

For and against investing

FOR: The current demand for new homes is huge and the government has committed to doing everything it can to boost the numbers. Low interest rates coupled with schemes to help people get on the property ladder add to the notion of a booming housing market. All this will help Taylor Wimpey in its demand for its products, and in turn performance. This performance could then lead to handsome investor returns in the form of dividends, making investors a passive income.

AGAINST: Macroeconomic pressures and the ongoing pandemic worries could dent any progress and investor returns. Rising costs could eat away at margin, linked to rising inflation. Furthermore, supply chain issues are also becoming a concern for firms like Taylor Wimpey, which needs essential materials to build homes. This could affect the bottom line and any passive income I hope to make by buying the shares.

FOR: At current levels, Taylor Wimpey shares look cheap to me. The shares sport a price-to-earnings ratio of close to 10, which is cheap for a quality company with a juicy dividend yield. Performance of late has been positive as well. A trading statement in November pointed to strong sales growth and a bright outlook ahead. Profit for FY 2021 should be achieved based on its initial guidance.

AGAINST: The house building marketplace is very competitive. Other FTSE 100 house builders that are vying for the same market share and customers include Barratt Developments and Persimmon. With such a competitive market and each firm trying to gain the advantage, performance could be affected, which would affect any investor returns.

Passive income opportunity

Right now I would happily add Taylor Wimpey shares to my holdings. At current levels, the shares look cheap to buy. The dividend yield is too juicy to ignore and this would help me make a nice passive income for my portfolio. Despite macroeconomic challenges, the market as a whole is burgeoning and demand for houses is outstripping supply at the moment. Taylor Wimpey should benefit from such favourable conditions, as will other FTSE 100 house builders.

The post Here’s a FTSE 100 stock that can make a nice passive income! appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. 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.