I love the idea of making money while I sleep. And there’s no better source of passive income than the stock market, in my opinion.
Today, I’ll be highlighting one FTSE 100 dividend stock that really appeals to me right now.
Passive income powerhouse
Housebuilder Taylor Wimpey (LSE: TW) currently has a monster forecast yield of 9%. This puts it near the top of the table of the highest-yielding stocks in the index. For comparison, the FTSE 100 yields 3.8% as a whole.
Why so high? It’s mostly due to the massive drop we’ve seen in the share price in 2022. Year-to-date, the company’s value has tumbled 41%.
This isn’t hard to fathom. As mortgage rates have galloped higher, demand from buyers has reduced. Earlier this month, the company reported that its cancellation rate for the second half of the year to date stood at 24%. It was 14% over the same period in 2021.
Throw in higher building costs and it’s understandable that some investors are nervous, even if the company said it was on track to meet market expectations on full-year operating profit.
In good health
What happens next with interest rates is anyone’s guess.
However, one thing is clear: UK housebuilders are in a far better place financially than they were during the Great Financial Crisis back in 2007. For its part, Taylor Wimpey now expects to end 2022 with around £800m in net cash.
Throw in a strong landbank and the perpetual shortage of quality housing and I think the shares could be a great contrarian play for me at a price-to-earnings (P/E) ratio of just over five.
Let’s run the numbers
One thing worth remembering is that no company can ever guarantee to pay out a proportion of profit to shareholders. In tricky times, dividend payments can be the first thing to be shelved in an attempt to shore up cash reserves.
For now, however, let’s presume that Tayor Wimpey’s dividend won’t be cut. How much would I need to invest to get £100 per month of passive income from the business?
Rounded up, the share price at the close on Friday was 105p.
Based on my calculations, I’d need to own 12,700 shares in Taylor Wimpey in order to generate the equivalent of £100 a month as things stand. I say ‘equivalent’ because the dividends are usually paid twice a year rather than every month.
Just get started
Now, it probably won’t come as a surprise to learn that I don’t have £13,335 sitting around. Even if I did, I’m not sure I’d be comfortable investing all that in just one company unless I had a very large pot of cash to put to work elsewhere.
So, generating that £100 certainly won’t happen straight away.
It’s also worth highlighting that share prices are always moving around while the market is open. For this reason, my calculations only make sense at the moment I’m typing this.
Still, the beauty of investing is that I can drip-feed cash in over time. And the earlier I get started, the quicker I can begin generating passive income to buy more shares.
In short, Taylor Wimpey has had a rotten year. Even so, I’m close to beginning to build a position here for the income on offer.
The post I’d buy 12,700 shares of this FTSE 100 stock for £100 in monthly passive income appeared first on The Motley Fool UK.
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- A FTSE 100 share that is the cheapest in its sector
- Best British shares to buy in November
- I’d rather buy this FTSE 100 dividend stock than a buy-to-let
- If I’d invested £5,000 in Taylor Wimpey shares a year ago, here’s how much I’d have now
- 9.9% yield! Here’s the Taylor Wimpey dividend forecast to 2023
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK 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.