Anyone investing for passive income would likely salivate at the possibility of a stock offering a 9% dividend yield. And that’s exactly what analysts have one company from the FTSE 250 down as delivering in the current financial year.
Is this one for Foolish investors to consider or be wary of?
Awful run of form
The stock in question is B&M European Value Retail SA (LSE: BME). And initial impressions aren’t great.
That stonking yield is mostly down to the company — and its holders — having an absolutely awful 2025 so far. Anyone picking up the shares when markets reopened in January would have seen the value of their stake fall by around 35%. Buyers from 12 months ago would now be looking at a 50% loss!
A falling share price pushes the dividend yield up, assuming a company has a policy of distributing a portion of profits back to its owners. Hence, that knockout number mentioned at the start.
Why has the share price crashed?
B&M’s tumble isn’t completely unwarranted. Like-for-like sales in the UK have fallen, leading to a profit warning from the retailer. The £2.3bn cap has also had to deal with higher wage costs and National Insurance contributions. Former CEO Alex Russo retired at the end of April, forcing a leadership transition.
Another thing worth noting is that there’s quite a bit of debt on the balance sheet. That’s not ideal with inflation climbing again. Indeed, the latter could mean that interest rates stay where they are for longer than expected.
With consumer confidence still fragile and margins falling, we can’t blame the market for taking a dim view of the business. At least some owners will also be questioning whether that huge dividend is at risk.
Not all bad
So are there any positives to B&M’s investment case as things stand? Actually yes, at least in my opinion.
A forecast price-to-earnings (P/E) ratio of seven for the current financial year is very low relative to the rest of the UK market. So, there’s the potential for the stock to deliver an excellent capital gain over time if (and that’s a sizeable ‘if’) the turnaround strategy of new CEO Tjeerd Jegen bears fruit.
Interestingly, directors have been investing a fair bit of their own cash in the stock in 2025. That doesn’t mean that a recovery is guaranteed. But it suggests that those ‘in the know’ now see the company as undervalued.
While there is some interest from short sellers — those betting the share price has further to fall — B&M isn’t nearly as ‘popular’ on this front as FTSE 100 giants like supermarket Sainsbury or Premier Inn owner Whitbread either. Every little helps, I guess.
Contrarian opportunity
Past performance is no guide to the future when it comes to the stock market. But nor should it be completely ignored. Tellingly, B&M stock fell heavily back in 2022 only to bounce hard in 2023. Anyone buying at the low would have doubled their money.
I don’t know if this will happen again. It’s an incredibly competitive space, after all. Even so, I can understanding value and income hunters sniffing around B&M, especially if dividends continue to be paid as they were during the previous dip.
