Shares in B&M European Value (LSE:BME) could be a passive income goldmine for investors in 2025 – and beyond. On top of its usual dividend, the firm just announced a one-off £151m distribution.
That means the company is set to return just under 10% of its market cap to shareholders this year in cash. But investors thinking of jumping at the opportunity should consider a few things first.
The issues
B&M announced the special dividend this week as part of its trading update for the period covering the last three months of 2024. But the report as a whole went down like a lead balloon.
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Adjusting for exchange rates, revenues were 2.8% higher than the previous year. And while profits were also higher (by an unspecified amount), that’s largely where the good news ended for investors.
Sales growth was entirely the result of the company increasing its store count. On average, revenues per outlet were down 2.8% – and this is the continuation of a worrying trend.
Like-for-like sales were down 1.9% in the previous quarter and 5.1% in the one before that. That’s why the stock has been falling so consistently over the last nine months.
Sooner or later, that has to change if B&M is going to avoid stagnation. The company isn’t going to be able to keep opening stores indefinitely without them getting in each other’s way.
The current rate of store expansion is around 6%. So unless the decline in like-for-like sales can stop soon, the business is going to find its revenue growth falls behind inflation, which would be a problem.
Dividends
A £151m special dividend – equivalent to 15p per share – sounds like a result for shareholders. But this is below what B&M has distributed in previous years.
Over the last five years, the company has paid one-off distributions of either 25p or 20p per share each year. So the 15p announcement from this week represents a dividend cut.
I think this should make B&M shareholders think carefully about the outlook for the dividend in 2025. But there are also some clear reasons for optimism.
While like-for-like sales were lower over the last quarter, management reported that these started to improve in December. And the company is starting 2025 in a strong inventory position.
The stock has also reached a level where it could be a good passive income investment without the business growing. The regular dividend plus the special distribution amounts to a yield of 9.72%. Of course, dividends are never guaranteed.
This means a £20,000 investment today could return £1,944 in dividends this year. And that’s enough to make me take it seriously.
Opportunity?
A 9.72% dividend yield is the kind of thing that investors typically find with tobacco companies. But unlike British American Tobacco, I don’t believe B&M’s core business is in terminal decline.
Like-for-like sales have been going backwards, but the company as a whole continues to move forward. The stock is risky, but I think investors looking for passive income should seriously consider it.
