With that in mind, I noticed two lesser-known FTSE 250 stocks with earnings due this week. One presents a compelling income opportunity while the other hints at recovery potential.

But are they worth considering?

Mitchells & Butlers

Pub group Mitchells & Butlers (LSE: MAB) is set to release its full-year results for the 52 weeks ended 27 September on Friday (28 November). 

Analysts forecast full-year revenue of around £2.73bn and operating profit around £325m–£327m, representing roughly 5% growth year-on-year. Shore Capital’s Greg Johnson has upgraded estimates to £325m, with EPS of around 30p (up around 14% year-on-year).

Performance has slowed this year as high inflation continues to suppress consumer spending. The company delivered 4.2% like-for-like sales growth for the full year, with food sales up 3.4% and drink sales rising 1.9%. Management confirmed in September that results should align with consensus expectations.

However, Q4 growth slowed to 3.1%, with some weakness in London venues and premium brands noted.

Inflation looks likely to be an ongoing challenge, expected to cost the pub operator around £130m next year (around 6%). The combination of wage increases and higher employer National Insurance contributions is a core contributor. Despite this, M&B said it’s confident it can navigate these issues through operational efficiencies and strategic investments.

Analysts are moderately confident, with around 66% giving the stock a Buy rating. The average 12-month price target is 347p, a 42.7% increase from current levels.

I don’t expect a big move after Friday’s results, so I see no reason to make big decisions today. However, if inflation eases, the recovery potential makes it one to consider in 2026.

Pennon Group

Water utility group Pennon Group  (LSE: PNN) is set to report its Q2 2026 earnings Thursday (27 November). From what I can tell, investors anticipate a strong return to profitability after last year’s loss. Reports suggest that the company has implemented disciplined cost control and efficiency measures to improve performance.

A combination of increased metering and revised tariffs has helped improve revenue, though some income was deferred into fiscal 2027 to smooth customer billing. Despite elevated costs driven by a surge in water demand and network stress, efficiency gains in its capital programme helped offset these pressures.

Analysts now expect adjusted EBITDA to rise around 60% year-on-year to around £536m-£562m. While still ambitious, this is marginally lower than the prior 66%-67% growth guidance due to operational issues over the hot summer.

Although environmental incidents have reportedly halved since last year, the company still faces notable risks from pollution and storm overflow spills. Wastewater outcome delivery incentives are set to be neutral his quarter. However, after a major burst at the Dousland facility, water services faced some impact from network leaks and supply interruptions.

Still, the group’s on track to deliver its targeted 7% return on regulated equity (RORE) for Q2.

While analysts don’t expect much in the way of price gains, the stock’s 6.6% dividend yield makes it worth considering as part of a diversified income portfolio.

The post 2 under-the-radar UK stocks to consider ahead of this week’s earnings reports appeared first on The Motley Fool UK.

As an example, shares in Pennon Group (LSE:PNN) come with a 7% dividend yield. There are definitely risks, but I think passive income investors shouldn’t be too quick to dismiss this one.

Water utilities

In general, no stock trades with a 7% dividend yield without investors finding something fairly obvious to dislike about it. And it doesn’t take much looking to see what that is in Pennon’s case.

Nobody likes water companies. Customers resent their bills going up, hosepipe bans and reports of sewage leaks. And governments object to the amount of money they make. This makes them constant targets for regulators. 

They’re also very capital intensive, requiring significant infrastructure investment. And that means they often have debt levels that are well above average for UK businesses.

By itself, these issues might be enough to put investors off buying shares in the likes of Pennon – and that’s fair enough. But for those willing to look closer, I think there’s a lot to like.

Debt

Between now and 2030, Pennon is set to invest £3.2bn in reservoirs, storm overflow protection, water treatment plants, and so on. And all of that has to be financed with either debt or equity.

But I think that investors should view all of this positively. Water utilities are allowed to earn a specified real return on these investments, which is currently in the region of 5.1%.

In essence, Pennon’s profit is the difference between its cost of capital and its return. And the more cash it earns this on, the more money it makes for its shareholders.

As long as the FTSE 250 firm can raise the cash at a lower rate, it stands to make money on its investments. And its recent communications indicate that it thinks it can do this.

Durable dividends

The difference between the two figures might not be huge, but it probably doesn’t need to be. Like all water utilities, Pennon benefits from some significant – and obvious – advantages.

Most obviously, it provides a service that people simply can’t do without. Demand for things like cleaning products tends to hold up well in a recession, but water is on another level.

It also benefits from having no competition. In the UK, people don’t have a choice about what water company they use and the associated costs mean I don’t see that changing any time soon.

That puts the firm in an extremely strong position when it comes to dividends. And with a 7% yield, income investors might think they don’t need much in the way of growth to do very well. 

Don’t be too hasty

Unusually large debt levels and high capital expenditures are enough to put a lot of investors off water utilities like Pennon Group. But I think they might be too quick to dismiss it.

As long as its cost of capital stays below the allowed rate of return, the firm’s spending on water infrastructure is an investment, not an expense. And that’s a good thing for shareholders.

Maybe there are better ways to earn a 7% dividend yield at the moment. But I think passive income investors should consider companies like Pennon properly before making a decision.

The post 7% yield! I think this FTSE 250 stock is better than most investors realise appeared first on The Motley Fool UK.

Loss-making

Lower water demand coupled with a record investment programme of £650m resulted in an underlying loss of £35m. After tax is accounted for, the loss was £57m. Like many of its peers, it’s struggling with a bloated balance sheet that has seen interest expense increase 23% in 2025.

There are no signs that South West Water, its main trading name, is in as dire a financial strait as, for instance, Thames Water. But a spate of recent negative headlines has undoubtedly been a major contributing factor in the stock’s decline.

Chief among them was the Brixham water incident last year. An outbreak of the parasite cryptosporidium resulted in residents being left with no water. It faced heavy criticism both for its slow response and lack of communication with residents affected.

Enhanced customer compensation together with the provision of bottled water over an eight-week period, cost it £21m. But the reputational damage was arguably far more significant.

Government review

Its interesting that on the day of its results the government published an interim report into the state of the water industry. It lays bare what has been known for some time: public confidence in the industry is at record lows.

The final report is due out in the summer, but my sense is that the days of bumper dividend payouts is over for some time.

Indeed, we have already seen this happening with Pennon. A rights issue back in February increased net debt to £4bn and diluted existing shareholders. As a result the dividend was re-baselined 14% lower. However, the dividend yield still sits at a healthy 6.4%. Yearly increases will be linked to the consumer price index.

Monopoly

One of reason for investing in water companies is revenue stability. As a monopoly business, Pennon negotiates with the regulator every five years on how much it can charge. The next control period runs from 2025-2030.

Ofwat has already announced significant price increases. As a result, in FY26, Pennon now expects earnings before income tax, depreciation and amortisation (EBITDA) to increase by 66%. In return for price increases, infrastructure spend will increase.

Examining the executive summary of the Independent Water Commission’s report a number of headlines grabbed my attention.

Firstly, it’s not recommending the end of privatisation. The cost to the taxpayer will simply be too great. Secondly, it heavily criticises the use of five-yearly reviews, which it claims has resulted in the setting of short-term targets across the industry.

The entire industry now stands at a crossroads. The spike in bills at a time of a cost of living crisis, pollution incidents and lack of infrastructure spend is forcing government to act. The predictability of future revenues is one key reason to invest. But should an outcome of the final report be that much longer-term cycles are needed, that could upend the entire investment thesis for many income-chasing investors.

With near-term uncertainty so great, I won’t be considering investing any time soon.

The post The Pennon Group share price falls on results day. Time to buy? appeared first on The Motley Fool UK.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

How to start building the pot

To begin with, I think an investor should figure out the target yield they would be happy with. Based on a variety of factors, I’d suggest considering a 7% dividend yield. This is high enough to warrant active investing versus simply buying a FTSE 100 tracker. Yet it’s not crazy high to the point that an investor would have to include some pretty risky stocks as well.

The next step is to look for dividend shares with a current yield around the target level. Given that this is a six-stock portfolio, an investor can afford to include ideas with yields higher and lower than 7%, as the average blended yield is what we’re really focused on. Within the FTSE 100 and FTSE 250 there are more than two dozen options in this ballpark to consider.

It’s important to ensure the picks aren’t all concentrated in the same sector or serving similar clients. This allows the portfolio to be truly diversified. If the portfolio held similar stocks and an issue impacted their sector, the hit to dividends could have a much larger effect than if they were spread around various areas.

Finally, once the six are selected, regular investment over time can increase the income potential. When a dividend gets paid, reinvesting it can allow for future gains to compound at a faster pace.

Ideas to think about

Based on the above filters, a six-stock portfolio could include Pennon Group (LSE:PNN), Aviva, WPP, Assura, Dowlais Group, and BP. The average yield on this portfolio would currently be 7.1%.

One company in particular worth looking at is Pennon Group, with a 7.2% yield. Over the past year, the stock is down by a modest 2%. The UK-based environmental infrastructure company mainly generates revenue through its water and wastewater services. Yet it also is investing heavily in renewable energy, as one way to future-proof the company.

The stable nature of cash flow from water provisions means that I don’t see the dividend under threat anytime soon. The company policy is to grow the dividend payments by the inflation rate plus an extra 2%. This means that investors can be confident of generating a real return even after adjusting for the impact of rising prices.

However, investors need to be aware of the real risk that reputational damage can cause. The cryptosporidium contamination incident in Brixham last year cost tens of millions of pounds, on top of a tarnished reputation.

Potential future benefits

If an investor put £250 a month in each of the six stocks, the pot could quickly grow in size. Assuming a constant dividend yield of 7.1%, year 11 could look quite rosy after a decade of reinvestment. With a potential pot size of £264k, it could generate £1,545 in income each month.

The post Here’s a 6-stock ISA portfolio that could make £1.55k in monthly passive income appeared first on The Motley Fool UK.

Essential goods sold

The first company is B&M European Value Retail (LSE:BME). The business sells low-cost homewares, garden products, toys and more via big-box stores. It trades both with businesses and directly to the public.

Given the bulk-buy, just-about-essential nature of goods sold, it’s a defensive stock. What I mean by this is that if we get a recession, investors might sell riskier growth stocks and buy B&M shares to try and protect themselves. Demand for the goods should remain firm even during a downturn. Let’s be honest, even if finances get tight, we still need to buy things like toilet roll and dishwasher tablets!

The company could benefit from consumers trading down during tough times. For example, whereas a customer might now buy branded products, during a recession they might cut costs and buy from B&M instead.

The share price is down 35% over the past year. This is partly due to a recent lowering of the annual profit forecast as like-for-like sales in the UK fell by 2.8% in Q3. Even though this is a risk going forward, the business is still due to post an annual core profit of over £600m, so I don’t feel investors should be overly troubled by this.

If anything, the share price drop, which put the stock last month at the lowest level since November 2022, could represent a good value purchase.

Security from utilities

A second idea is Pennon Group (LSE:PNN). The firm is a UK-based water and waste management company, which primarily operates in through its subsidiary, South West Water. The stock is down 12% over the last year.

It makes money through the provision of the water and wastewater services to both residential and commercial customers. It’s a business model that has proven to be profitable over many years. As it’s a mature company, it does rely on paying out dividends to keep investors happy. At the moment, it has a generous 7.81% dividend yield.

Investors could find this defensive stock appealing, as even during a recession customers will still need water provisions. Even when I look at the pandemic period of 2020-2022, revenue didn’t materially fall. This makes sense, as the services provided are key, regardless of the economy.

The dividend payments are also appealing. If the stock market does fall during the recession, being able to pick up income in the process can help to offset losses elsewhere.

However, one concern is the fines over the past year due to sewage spills. The financial and reputational damage this can do is something the company needs to focus on.

I believe both stocks could be good for an investor to consider, if they are worried about the current state of the UK economy.

The post 2 FTSE 250 stalwarts that could help if we enter a recession this summer appeared first on The Motley Fool UK.

If the company maintains a steady dividend, the yield falls as the price rises. Ideally, I look for a yield that remains stable, indicating a steady increase in dividend payments in line with price growth. These types of stocks can make reliable additions to a passive income portfolio.

Searching the FTSE 250 index, one stock caught my eye that could be promising. So I decided to peek under the hood.

A lesser-known utility group

Pennon Group‘s (LSE: PNN) a £1.6bn water and waste management company better known by its subsidiaries, including South West Water and Bristol Water. Founded in 1989, it’s relatively young compared to most UK utility companies.

I like utility companies because their regulated business models and essential services provide a degree of stability and resilience. Lately, many have been struggling, and even leading providers like National Grid and Severn Trent have suffered losses. Pennon’s share price has been in decline since mid-2021, now down by almost 60% in five years.

On the face of things, that doesn’t look great. But things may start improving soon. Earnings are forecast to grow 37.9% a year going forward, leading analysts to predict an average 12-month price target up 23% from current levels. That could translate to some decent returns when adding in the 7.7% dividend yield.

It’s a promising forecast, particularly considering the majority of analysts are in agreement. But that doesn’t mean it’ll happen. 

What could derail the performance?

Pennon says it’s been actively investing in infrastructure to improve its services and enhance its long-term growth prospects. But despite efforts to reduce costs and improve operational efficiency, I’m yet to see any notable improvement in its financial performance.

This was made evident earlier this year when the company released its full-year 2023 results. Although revenue grew 14% and operating income increased 8.6%, it reported a £9.5m loss and dividends took a hit. In previous years, it increased dividends by 6% on average but this year, growth was reduced to only 3.8%.

Fortunately, the reduction may just be a once-off. The redirection of funds is to cover a £2.4m fine from the Environmental Agency for a sewage leak that caused a parasitic outbreak in Brixham.

That’s reportedly been resolved but a repeat of such an issue could cost the company dearly — both reputationally and financially. What’s more, its total debt has risen from £3.1m in 2023 to almost £4bn this year after acquiring Sutton and East Surrey (SES) water company for £89m.

My verdict

Pennon’s attractive from a dividends point of view, with a good payment history and high yield. However, it seems to be making costly operational errors and taking on a level of debt that could soon become unmanageable. Its interest coverage has dropped to 1.1 times and its debt-to-equity (D/E) ratio’s up to 246%.

For me, that makes it too risky an investment to consider for a long-term income portfolio.

The post Down 60%! Does the 7.7% dividend yield make this stock worth considering? appeared first on The Motley Fool UK.

Despite having no competition and providing a service people can’t do without, the firm cut its dividend earlier this year. And with pressure coming from multiple sides, I’m wary of the 7.4% yield. 

Dividend cuts

Earlier this year, Pennon announced a reduction in the amount it would be paying out for its final dividend. This was because the company was fined £2.2m for disposing of sewage into rivers.

By itself, this shouldn’t a big problem. There are a couple of reasons for this, one of which is if it’s a one-off event that won’t be an ongoing issue. 

The other is the fact the 30.33p per share paid out as a final dividend was still an increase on the year before. The final dividend in 2023 was 29.77p per share.

The trouble is, this isn’t the only problem – Pennon’s been fined another £3.5m for an outbreak of cryptosporidium that’s likely to weigh on the dividend for 2025. And this could be about to get worse.

Regulation

The change of government looks ominous for water utilities across the board. I think there’s a decent chance the fines the company’s been paying could increase.

A key part of Labour’s manifesto involved tougher sanctions for water companies. And there’s a particular focus on sewage disposal – which is what Pennon was fined for last year. 

This could result in greater fines, as well as increased power for regulators. Importantly, this isn’t a one-off thing, it has the potential to be an enduring issue for that 7.4% dividend.

Exactly what the consequences will be for Pennon and its shareholders remain to be seen. But I don’t see how it can be a positive for the company and it makes it difficult to buy the stock. 

Water bills

Pennon’s business is also under pressure from regulators. It’s protected from competitors, but that means it doesn’t have the ability to set its own prices – these have to be approved by Ofwat. 

Earlier this year, South West Water requested permission to increase water bills by 33% between now and 2030. Last month, the regulator announced that it would approve an increase of just 13%. 

That’s a potential problem for Pennon. The company has to invest in its infrastructure and it will need to find the capital from somewhere.

Borrowing seems risky with a lot of debt already on its balance sheet. That means the cash may well have to come from dividends, creating a lasting pressure on the company’s income statement.

Sellign short

It’s easy to see why the stock’s attracting the attention of short sellers. Ofwat’s putting pressure on its revenues and the UK government’s threatening to increase costs. 

Neither’s good for profitability or the dividend. That’s why I’m staying away from the stock even after a 44% decline over the last five years.

The post Down 44% and yielding 7.4%, is this FTSE 250 stock too cheap to ignore? appeared first on The Motley Fool UK.

Here are some FTSE stocks on my watchlist to fit the bill.

Straight to the bank

First up is Barclays (LSE:BARC). The UK bank will announce the latest dividend alongside the half-year results due out today (1 August). I expect it to be higher than the 2.7p from the same release last year, thanks to continued profitability over this period.

It’s true that the dividend yield has fallen this year, from around 5.5% at the start of 2024 to 3.44% now. However, this is down to the share price rise. In fact, over the past year, it’s now up 52%!

The total dividend per share payment’s been rising for the past few years, and with the bank well into the strategic drive to improve efficiency, I feel the future for the firm (and the dividends) is bright.

It has a strong track record of paying out income over the decades, but a risk is linked to the financial regulators. For example, during the pandemic they advised banks to stop paying dividends to protect cash flow. So this could happen again and is something I can’t really control.

A consumer staple

A second option is the Supermarket Income REIT (LSE:SUPR). This has a high dividend yield of 8.15%. The share price is down 2% over the past year.

The investment trust owns a portfolio of supermarket real estate sites, which it leases out in order to generate income. The bulk of this is then paid out to investors as a dividend. In order to keep receiving favourable tax status as a REIT, it has to pay out a high amount of profit as dividends. Therefore, I’m confident this will be a lifelong income stock.

One risk is that this REIT’s quite niche, in focusing just on supermarket sites. Even though I think this is a stable area to serve in the consumer staples space, others might disagree. Should this area take a hit, the trust doesn’t have any real diversification.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Decades of constant income

Finally, I like Pennon Group (LSE:PNN). The FTSE 250 stock provides essential utility services and environmental infrastructure. As a result, it serves in a stable industry.

The 11% fall in the share price over the past year has helped to push up the yield to 7.11%. Part of this is down to last year being one of the wettest on record. The resulting increased wastewater flows and pollution wasn’t a great image for the company.

The proposed merger of Sutton & East Surrey Water and Pennons South West Water could provide another boost for finances going forward. The economies of scale and higher efficiencies could translate through to a more profitable overall outfit.

Having paid constant dividends for over two decades, I think this should continue, reducing my stress levels. I’m keeping the FTSE shares I already own and I’m thinking about adding the ones I don’t currently have to my portfolio.

The post 3 FTSE shares I like for stress-free lifelong passive income appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Aviva

What it does: Aviva is a FTSE 100-listed British multinational insurance and pensions provider

By John Fieldsend. Aviva (LSE: AV.) continues to look like one of the FTSE 100’s best dividend stocks. 

As I write, the dividend yield stands at 7.43% which is a tidy amount all on its own. That yield is higher than the historical total return for Footsie stocks. I’d be very happy to bank on it year after year, but the forecast is set to increase over the next two years as well.

In terms of downsides, I will mention that the shares have risen around 15% in the last month. It seems I wasn’t the only one who spotted an attractive yielding stock and investors have been rushing in and pushing up that share price. If I bought in today, I’ve likely missed out on the best deal I could have got here.  

Still, I think that insurance, with its defensive qualities, is a smart play for upcoming economic underperformance. People don’t tend to cut their insurance products even when times are bad. I’m happy with the shares I own and may buy more soon.  

John Fieldsend owns shares in Aviva.

Pennon Group

What it does: Pennon is a water utility company based in the UK, primarily operating in the South West.

By Jon Smith. The current dividend yield for Pennon Group (LSE:PNN) is 5.65%. Part of the rise in the yield over the past year has been the 23% fall in the share price.

This hit was due to higher interest rates causing the cost of servicing debt to increase. The summer drought also weighed heavy on the company. I accept that the risk of weather is factor that I can’t control and could be a risk going forward.

However, I think interest rates have peaked and could fall next year. Therefore, this should act to lower costs and helped to boost overall profitability for the utility firm. Not only could this provide more retained earnings to pay out as dividends, but it can be used towards further capital expenditure investment.

Pennon Group is also a defensive stock, which should help an income investor as we head into an uncertain 2024.

Jon Smith does not own shares in Pennon Group.

Vodafone

What it does: Vodafone is a telecoms company offering a range of services across multiple European and African markets.

By Christopher Ruane. What does it say when a FTSE 100 share yields 11%?

At first glance, such a yield seems very tasty from any share let alone a member of the blue-chip index of leading British companies.

On the other hand, FTSE 100 shares with a double digit yield are a rare species. There is a risk that such a share could be a yield trap.

What about Vodafone (LSE: VOD)?

On the downside, it has sizeable debt, has been selling off businesses and has to contend with high capital expenditure requirements that are common in its industry.

Set against that, net debt has fallen by 20% in the past year. Selling businesses has raised cash that could help to support the generous shareholder payout. As for high capex requirements, Vodafone has decades of experience in its sector.

I think the company could benefit from ongoing demand for mobile and data services as well as fast-growing areas like mobile money in developing markets.

Christopher Ruane owns shares in Vodafone.

The post Best British dividend stocks to consider buying in December appeared first on The Motley Fool UK.

Water infrastructure

Pennon is a British water company based in Exeter. Most of its profit comes from its subsidiary South West Water, but it also has international operations too.

Let’s start by taking a look at Pennon shares. As I write, they’re trading for 635p. At this time last year, they were trading for 936p, which is a 32% drop over a 12-month period. Many dividend shares have fallen in recent months due to macroeconomic issues such as rising inflation and interest rates.

What I look for in dividend shares

1. Defensive traits and cash generating abilities. I believe Pennon has defensive characteristics. This is because no matter the economic outlook, water is an essential part of day-to-day life that everyone requires, including businesses. This means that people will need to pay their water bills, which should keep the money flowing in for Pennon, underpinning returns.
2. Level of return. As with any dividend shares, I want to get the maximum returns possible. Pennon’s dividend yield stands at a juicy 6.7%. This is significantly higher than the FTSE 250 average, which is the index on which the stock resides. However, I am conscious that dividends are never guaranteed.
3. Share price valuation. Pennon shares look good value for money on a PEG ratio of just 0.4.
4. Competition. Finally, the water industry has high barriers to entry. Creating a water company and stealing Pennon’s customers is not a likely occurrence nor one that could happen very easily or quickly.

Risks and what I’m doing now

To the bearish perspective, then. There is a lot of negativity around the water industry in terms of environmental impact as well as how much customers are charged. This has impacted Pennon shares, as well as those of other water companies. This could continue to negatively impact investor sentiment.

The other issue for Pennon is that the water industry may have high barriers to entry but it is highly regulated. These regulations could change, impacting earnings and investor returns. The threat of changing regulation is an ever-present risk that I must keep an eye on.

I believe Pennon shares could be a shrewd addition to my holdings from a passive income perspective. The shares look good value for money currently and the dividend yield is enticing.

Add to this Pennon’s defensive traits and I’m sold. I’d happily add some Pennon shares to my holdings when I next have some spare cash to invest.

I’m not worried about the current negative sentiment around water companies or the threat of changing regulation. The way I look at things is water is an essential component of our lives, and I can’t see that changing for many years to come. I believe Pennon is one of a number of dividend shares that could boost my holdings and continue to grow for many years ahead.

The post Looking for dividend shares? Here’s one with a 6% yield! appeared first on The Motley Fool UK.