8% yield! Is this FTSE 100 stalwart a top passive income buy?

At FTSE 100 consists of a large number of companies that offer very high dividends. These payments to shareholders are one way to earn passive income.

When my business has shares to issue dividends, I can log into the broker’s application and see that the cash deposit has been made. Everything is automatic. It couldn’t be easier. And now, there are stocks I want to buy to get more of those dividend payments. Why buy for me? Let’s see.

Low price for this home builder?

The stock I want is the home builder Taylor Wimpey (LSE: TW). This company’s shares, like many UK stocks, look cheap at the moment.

The stock price is down 49% from its pre-pandemic high, and the stock trades at a price-to-earnings ratio of 7.4. That’s less than the FTSE 100 average (14) and the UK housebuilder average (11.2).

I like the sound of getting at a cheap price, but is there more to fall for? An ongoing recession and high interest rates can keep people from buying a home.

The housing market is usually cyclical, and this may be one of the lean periods. If I buy shares now, I can be in for a year or five. So here’s the question: if I hold this stock, will the dividend payment be worth the short-term pain?

A yields the best dividends

At the current share price, Taylor Wimpey offers an annual yield of 8%. If I buy today in £ 20,000 shares, I will receive £ 1,600 to the account back from the company every year if the returns continue.

It’s a decent starting point, but it doesn’t do justice to the kind of return I can get with compound interest.

For example, I could hold £20,000 in shares for 10 years at 8%, so it would be worth £43,179 today. So, my money doubled in ten years.

But I’m in it for the long term, and if I can hold £20,000 in shares for 30 years at 8%, it will snowball to £201,253.

Compound interest has turned the initial amount into more than 10 times its value. In fact, that sum is higher than the average pension pot that UK workers take in (around £190,000).

And because the dividend payment is automatic, I have done nothing extra to get this return. I can forget about it and the payment will still appear in my account. That’s true passive income, for me.

There are risks with this kind of investment. For one, dividends can change depending on the health of the business or the stock market. In addition, falling or rising stock prices will also affect the total value.

I bought it?

My strategy is to hold shares in many companies. In this way, I will receive dividends and profit from the growth of the share price, only with less risk compared to if I invested in only one company.

Will Taylor Wimpey be one of those companies? Currently, UK stocks look cheap. So, as attractive as the dividend is, I can see a lot of other stocks that could offer great returns without the short-term headwinds of the housing market.