One 5% yielding soaring stock investors should consider for juicy passive income!

This Fool reckons this utility business could be a great passive income earner, thanks to its impressive track record of payouts.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young black colleagues high-fiving each other at work

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Telecom Plus (LSE: TEP) is one rock-solid passive income stock I think investors should be taking a closer look at. Here’s why!

Utilities smorgasbord

Telecom Plus owns and operates the Utility Warehouse brand. It proudly boasts being the UK’s leading multiservice utility provider. It offers a variety of services including broadband, energy, mobile, and insurance through holding one account. I know personally it can be a nightmare managing all these different utilities separately!

As I write, Telecom shares are trading for 1,640p. At this time last year, they were trading for 2,490p, which is a 34% drop over a 12-month period.

Telecom’s share price drop isn’t something I’m concerned about. I think it has been unavoidable due to market volatility. I view it as an opportunity to buy cheaper shares in a burgeoning business.

The investment case

I’m hard pressed to find many passive income stocks with such a great historic track record coupled with excellent recent performance. Although I understand past performance is not a guarantee of the future, I can’t ignore that the business has experienced yearly growth for the whole 25 years it’s been operating.

Plus, a recent update last week revealed that the business is set to double its customer base. In addition to this, its exclusive energy deal with Eon made it the cheapest supplier of energy last year. This helped boost pre-tax profit by nearly 40% for the six months ended 30 September. Furthermore, revenue soared by a whopping 57.1% and the business increased its interim dividend too. Finally, the good news kept coming with a share buyback programme to begin imminently.

Moving onto returns, Telecom hasn’t cut its dividend for 15 years! At present, a dividend yield of 5% looks well covered too. However, it’s worth remembering that dividends are never guaranteed.

Telecom’s business model is interesting. Rather than traditional marketing spend – which can be costly – it uses partners to sign up new customers. These are individual agents. Now there is a risk here for me to consider. This could present problems in the future if regulations are tightened. Many energy businesses have fallen foul of mis-selling practices in the past. Such issues could dent investor sentiment and Telecom’s performance if it were to fall foul of this issue.

Another issue is that of intense competition in the utilities sector. Many firms are vying for customers and a cost-of-living crisis could see firms undercut each other. This could impact Telecom if it were beaten on price and threaten potential payouts.

Final thoughts

Overall I reckon there’s a lot to like about Telecom Plus. A solid track record, positive recent performance, as well as the shares falling providing an attractive price point to buy some shares are some of these aspects.

A price-to-earnings ratio of 18 isn’t the lowest but I believe sometimes one must pay a good price for a quality business.

I reckon the business can provide solid dividends for those looking to boost a second income stream.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor 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.

More on Investing Articles

Investing Articles

If I put £20k into a FTSE 100 tracker fund, I’d get this as a second income

A lot of UK investors have money in Footsie trackers. Here, Ben McPoland explores how big a second income he…

Read more »

Investing Articles

2 FTSE 250 stocks I reckon could be savvy buys ahead of the next bull market

Our writer explains why these FTSE 250 picks could be shrewd buys now, as economic sentiment at present could mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Will the Reckitt share price finally recover after announcing a major shakeup?

The Reckitt share price has climbed slightly higher today after somewhat positive news. But I wonder if it's enough to…

Read more »

Investing Articles

I could turn £20K into a monthly passive income stream worth £1,685!

This Fool isn't interested in leaving cash in the bank. She wants to invest to build a passive income stream…

Read more »

Investing Articles

After rising 43% in a month, is Oxford Nanopore now a top UK stock to buy?

Shares of Oxford Nanopore (LSE:ONT) have been surging recently. Is this a growth stock to buy for my portfolio after…

Read more »

Investing Articles

Is this a great opportunity for UK investors to buy Tesla stock?

Tesla stock slumped 7.3% in post-market trading. With the pound looking strong, our writer explores whether UK investors should think…

Read more »

Investing Articles

These boring but beautiful picks will always have a place in my Stocks and Shares ISA

Harvey Jones is building his Stocks and Shares ISA around seven FTSE 100 dividend stocks that should slowly reveal their…

Read more »

Investing Articles

This FTSE 100 stock has crashed nearly 70%! Would I be silly not to buy?

The share price of FTSE 100 icon Burberry is on the floor. But is now the time for this Fool…

Read more »