I’m searching for the best FTSE 100 shares to generate long-term passive income. Discount retailer B&M European Value Retail (LSE:BME) is one such UK blue-chip I’m thinking of buying for dividends.
Discount giant
Rising labour costs look set to remain a big drag on retailers’ profits. Last month Aldi hiked wages for the fourth time in just a year and further increases across the sector are likely.
Yet I believe the bright revenues outlook for certain food and general merchandise retailers still merits close attention. It’s why I’d buy B&M shares for my portfolio.
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As the name suggests, this FTSE 100 share concentrates on the budget end of the market. This is a segment that continues growing at rapid pace, as the rise of Aldi and Lidl over the past decade illustrates.
B&M’s own sales leapt 12.3% at constant currencies in the 13 weeks to December 24, latest financials show.
Short-term boost
This long-running trend reflects changing consumer demands and the increasing importance of value in shoppers’ minds. But the likes of B&M have also benefited more recently from the impact of high inflation on household budgets.
The Bank of England expects inflation to moderate in the second half of the year. But retail industry experts remain cautious over when food inflation — which rose to 46-year highs of 18.2% last month — will start to recede.
Tesco chairman John Allan told the BBC at the weekend that “most people expect there will be some easing of inflation [but] I’m not going to be brave enough to forecast how much and when.”
He added that inflation is likely to go down. However, his comments fuel speculation that sales at value retailers could be better than expected in the near term as shoppers try to stretch their budgets as far as they can.
More special dividends?
Thanks to recent strong trading B&M has been paying special dividends to its shareholders. In fact it’s announced a slew of supplementary rewards in recent years. And in February it announced plans for a further 20p one-off payout.
City forecasters aren’t expecting any more special dividends, at least in the short term. But they also weren’t predicting more extraordinary payouts earlier this year, either.
Given the B&M’s bright outlook I expect more big dividends could be coming down the line. Value retail in the UK has much further to climb. And this business is expanding to fully exploit opportunity.
It increased the number of B&M stores in Britain to 705 by the end of 2022, a rise from 693 a year earlier. And the number of Heron Foods outlets rose by five over the period, to 315.
Today the retailer carries a 3.9% forward dividend yield, just above the FTSE index average. But given the chance of extra dividends I think this could be a great stock to buy for passive income.
