Investing £20,000 in this FTSE 250 stock today could net investors £1,944 in passive income this year

After falling 11% in a week, this FTSE 250 company is set to return almost 10% of the its market cap in passive income this year and beyond.

| 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.

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.

Shares in B&M European Value (LSE:BME) could be a passive income goldmine for investors in 2025 – and beyond. On top of its usual dividend, the firm just announced a one-off £151m distribution.

Created with Highcharts 11.4.3B&M European Value PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

That means the company is set to return just under 10% of its market cap to shareholders this year in cash. But investors thinking of jumping at the opportunity should consider a few things first.

The issues

B&M announced the special dividend this week as part of its trading update for the period covering the last three months of 2024. But the report as a whole went down like a lead balloon. 

Should you invest £1,000 in Phoenix Group Holdings Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Phoenix Group Holdings Plc made the list?

See the 6 stocks

Adjusting for exchange rates, revenues were 2.8% higher than the previous year. And while profits were also higher (by an unspecified amount), that’s largely where the good news ended for investors.

Sales growth was entirely the result of the company increasing its store count. On average, revenues per outlet were down 2.8% – and this is the continuation of a worrying trend. 

Like-for-like sales were down 1.9% in the previous quarter and 5.1% in the one before that. That’s why the stock has been falling so consistently over the last nine months.

Sooner or later, that has to change if B&M is going to avoid stagnation. The company isn’t going to be able to keep opening stores indefinitely without them getting in each other’s way.

The current rate of store expansion is around 6%. So unless the decline in like-for-like sales can stop soon, the business is going to find its revenue growth falls behind inflation, which would be a problem.

Dividends

A £151m special dividend – equivalent to 15p per share – sounds like a result for shareholders. But this is below what B&M has distributed in previous years.

Over the last five years, the company has paid one-off distributions of either 25p or 20p per share each year. So the 15p announcement from this week represents a dividend cut.

I think this should make B&M shareholders think carefully about the outlook for the dividend in 2025. But there are also some clear reasons for optimism.

While like-for-like sales were lower over the last quarter, management reported that these started to improve in December. And the company is starting 2025 in a strong inventory position.

The stock has also reached a level where it could be a good passive income investment without the business growing. The regular dividend plus the special distribution amounts to a yield of 9.72%. Of course, dividends are never guaranteed.

This means a £20,000 investment today could return £1,944 in dividends this year. And that’s enough to make me take it seriously.

Opportunity?

A 9.72% dividend yield is the kind of thing that investors typically find with tobacco companies. But unlike British American Tobacco, I don’t believe B&M’s core business is in terminal decline. 

Like-for-like sales have been going backwards, but the company as a whole continues to move forward. The stock is risky, but I think investors looking for passive income should seriously consider it.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value and British American Tobacco Plc. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s my Stocks and Shares ISA plan for 2025-26

A Stocks and Shares ISA helps investors avoid taxes on dividends and capital gains. And Stephen Wright has a plan…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »