When searching for ways to generate increasing amounts of passive income, I think it’s natural to gravitate to the UK’s biggest and best-known companies.
For an extra dollop of diversification, however, I reckon it’s also worth looking a little further down the market spectrum. Fact is, there are plenty of smaller businesses boasting great records of raising the amount of cash they return to investors every year.
Let’s take a closer look at one from the FTSE 250.
Soaring share price
Despite having a market cap approaching £2bn, I suspect OSB Group (LSE: OSB) — formerly OneSavings Bank — isn’t on the lips of most retail investors. However, the Chatham-based specialist mortgage lender and savings provider’s share price has been absolutely flying in 2025. We’re talking about a gain of around 35%!
Reasons for this include reassuring operating performance, growth in its net loan book, and share buybacks. The last of these can indicate that management thinks the stock is undervalued.
Clearly, all this good news won’t have done any harm to OSB’s income credentials either.
Passive income powerhouse
Right now, this stock boasts a forecast dividend yield of 6.5% for 2025. For perspective, that’s almost twice the yield of the mid-cap index as a whole.
OSB has also been raising its dividend nearly every year since it first started paying them 10 years ago. I say ‘nearly’ because holders didn’t receive anything in 2020. Back then, the Bank of England requested that all banks and lenders suspend dividends as a precautionary measure due to the uncertainty of Covid-19. But things kicked back in a year later.
Of course, a chunky dividend isn’t much good if there’s only a small chance it will actually be paid. But on this front, I don’t think OSB’s current shareholders should be worried. Assuming analysts projections are on the money, this year’s total cash return should be covered over twice by expected profit.
So, what might go wrong?
For balance, it’s worth considering how this company’s current momentum might stall or reverse and potentially put that passive income at risk of being cut. As good as the dividends are, the share price hasn’t been a stranger to volatility over the years.
The fact that OSB operates in a cyclical sector can’t be ignored. It could easily be impacted by wider economic wobbles and/or a housing market downturn. Regulatory changes could also take the shine off the investment case.
As far as the company itself is concerned, investors will want to see signs that margins aren’t being eroded and guidance is maintained. A Q3 update is due in early November.
I’d also prefer not to see so much director selling in recent months. While this is understandable given how well the shares have performed, a bit of buying wouldn’t go amiss.
Still cheap
These concerns aside, I think this stock warrants more attention from investors looking to build an income stream from the stock market. This is especially as it still only trades for the equivalent of seven times forecast earnings.
That valuation is good for stocks in the financials sector. But it smacks of a potential bargain relative to the UK shares as a whole.
