A once-in-a-decade chance to get rich by targeting passive income from shares?

Kevin Godbold thinks it’s a great time to seek passive income from UK shares right now, such as these ones in the FTSE 100.

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For me, the best way to get passive income is by investing in the shares of stable businesses when they’re paying generous dividends.

There’s a peculiar phenomenon going on right now. The general economic storm clouds appear to be parting. Prospects ahead look brighter for many businesses than they have for a long time. Yet the London stock market continues to languish.

While the US market’s been shooting up on the improving economic news, the reserved British are seemingly turning their backs on share ownership. At least, that’s how it feels to me.

Is the London market undervalued?

It’s no secret the London stock market looks cheaper in valuation terms than several others around the world right now. But how long can this sorry state of affairs continue?

Already, under-valued UK businesses are being gobbled up by other enterprises both national and international. If private investors and investment institutions can’t see the attractions, others can!

Perhaps we’re seeing a once-in-a-decade chance to get rich by targeting passive income from UK shares. Well, I’m not hanging around to wait for the facts to be proven by share prices rocketing higher. My aim is to research and buy promising dividend income stocks right now!

For example, in the FTSE 100 index, retail stocks look like good value. I’m thinking of names such as J Sainsbury, Kingfisher and B&M European Value Retail (LSE: BME). As I type (12 March), those three have forward-looking dividend yields of 5.5%, 5.2% and 4.2% respectively.

Of course, share prices change, and those levels of yield will vary over time. But that’s all the more reason for me to get stuck into researching these stock opportunities with a view to buying and holding some of the shares.

The B&M value retailing business, for example, has been bouncing back after a period of softer trading. Earnings retreated about 18% in the trading year to March 2023. But for the current year to the end of March, City analysts expect an almost 8% recovery, followed by a similar improvement next year.

Bigger dividends ahead

But the exciting prediction is what’s expected from the dividend — growth of almost 41% this year and 15% next year. If the company keeps pushing up the shareholder payment to reflect its trading growth, B&M shares could shape up to become a worthwhile passive income investment.

The full-year results report is due on the 5 June and I’m keen to see it. Meanwhile, the company released an upbeat statement on 9 January, confirming that trading had been going well.

The firm describes itself as an everyday low-price discounter with a “laser-focus” in keeping excellence in retail standards and the lowest costs. Perhaps that statement underlines the strength and the weakness of the business at the same time.

One of the biggest risks for shareholders, as I see it, is that competition may eat into B&M’s market share. The recent collapse of the Wilko value chain underlines what can go wrong if a business in retail loses direction, or if it becomes less popular with consumers.

Nevertheless, on balance, B&M is trading well right now and the dividend’s growing. I see the company as well worth the research time of investors who are seeking a passive income stream – like me!

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. 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.

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