Even as UK shares reach new record highs in 2025, there are still plenty of cheap stocks to choose from. And in some instances, many are offering a chunky-looking dividend yield. Perhaps a perfect example of this would be B&M European Value Retail (LSE:BME).
The value supermarket chain has had a few stumbles of late. As a result, the stock’s dropped close to 50% over the last 12 months. While unpleasant for existing shareholders, this downward momentum has dragged the price-to-earnings ratio down to a dirt cheap 6.8. And at the same time, it elevated its dividend yield to a tasty 6.9% as well.
So is this a bargain-basement passive income opportunity?
What happened to B&M?
When exploring the supermarket investment space, B&M stands out from the crowd. Unlike industry titans such as Tesco or Sainsbury’s, the retailer’s unique blend of inventory has produced some of the highest operating profit margins in the industry. And yet, even with this critical advantage, the group’s performance has been struggling.
Even with higher profitability, a combination of wage inflation and higher interest expenses has caused the company to miss analyst expectations. What’s more, other category retailers such as Aldi and Lidl are proving to be formidable competitors, forcing B&M to cut prices even further in an attempt to attract and retain shoppers.
The result has been profit compression and weaker sales growth. In fact, during its 2025 fiscal year (ending in March), like-for-like sales shrank by 3.1% – a potential early indicator that B&M’s losing market share.
Needless to say, that’s the opposite of what investors like to see. So with that in mind, it’s no surprise B&M shares have suffered. But with the damage now done, could B&M become a cheap stock to consider buying?
The potential for a comeback
There’s no denying the company’s facing both competitive and economic pressures. However, B&M still holds a relatively strong market position. And looking at its latest results, revenue growth’s seemingly back on the rise. During the three-month period ending in June, sales climbed 4.4% with like-for-like sales re-entering positive territory.
Gross profit margins are still reeling from price cuts. But as we enter the second quarter, management expects to offset this impact as new product ranges are put on the shelves. And with a new leadership being installed in June, today’s cheap valuation could prove to be a lucrative entry point in B&M’s turnaround story.
As for dividends, even with the downturn in earnings, shareholder payouts remain well-covered, suggesting that the 6.9% yield’s here to stay.
The bottom line
All things considered, B&M’s a bit of a mixed bag. On the one hand, it’s one of the most profitable fast-moving consumer goods retailers in Britain. On the other, competitive pressures are seemingly taking their toll on growth, sparking concerns of market share losses.
If the new CEO can successfully right the ship, today’s cheap valuation and high dividend yield could unlock lucrative returns for investors. Obviously, there is no guarantee of this happening. But with early signs of improvement starting to creep in, I think it’s a risk worth considering.
