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. 

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.

I generally invest in medium- and large-sized companies with proven business models. But I own the odd penny share. One I am particularly excited about has soared 28% in the past month, although over five years it has fallen 90%.

But some recent developments led me to buy more shares in this company – here’s why.

A nice problem: lots of cash getting dusty

The company in question is Logistics Development Group (LSE: LDG).

With a market capitalisation of £75m, this is a fairly modest operation. It also has significant shareholders that have specific (and competing) visions of how the company ought to be run. I see that as a risk for a small shareholder like me, but it is also a potential opportunity.

Last year, an activist investor launched a campaign — ultimately unsuccessfully — seeking to wind down the company and distribute its assets to shareholders.

The reason for that is interesting in my view. LDG is basically sitting on a large pile of cash. The group’s cash position last month was about £44m, almost 60% of its entire current market capitalisation.

Unlocked value in investment portfolio

Not only that, but the company owns stakes in a number of other firms.

For example, it is a shareholder in Alliance Pharma. Last week, it was announced that Alliance had agreed to a takeover bid at a price 41% higher than its share price the day before the takeover was made public.

LDG indirectly owns 13% of Alliance. It will receive an equivalent stake in the new private company. Last month, LDG also announced that it had redeemed a £10m debt note it held in another company for £13.1m.

At that point, the company also laid out a plan I think is aimed at mollifying its activist shareholder, proposing a tender offer at 19p per share to return up to £21m to shareholders.

If that is approved by shareholders (which I expect it will be), LDG will buy back a certain amount of shares for 31% higher than they can be bought for on the open market right now.

Why I’ve been buying

That news led me to increase my stake in this penny share. The sizeable discount of the share price versus the proposed tender offer points to ongoing risks.

The tender offer may not complete, for example. Even if it does, its scale is capped, so there is no guarantee of how many shares I may be able to sell back to the company at the 19p price.

Even considering that though, I continue to see potential deep value here. LDG is sitting on a large cash pile it has explicitly set out to reduce by buying back some shares at well above their current price. It is also sitting on a number of investments that, as the debt note sale and Alliance takeover illustrate, could ultimately turn out to be worth more than their current carrying value on the company’s balance sheet.

They may not, of course. But on balance, I reckon LDG is a share that could ultimately be worth substantially more than its current price suggests.

The past few years have been good ones for bargain hunting in the London stock market, in my view. While some US shares have hit what I see as unjustifiable valuations, my hunt for shares to buy on this side of the pond keeps throwing up what I think are potentially real bargains.

Nobody knows how long that may last, but I am continuing to make hay while the sun shines (metaphorically, of course: a bit of actual sunshine feels more than overdue!)

Are British shares as cheap as they seem?

The stock market contains thousands of companies and some of them look expensive, not cheap, to me.

Taken in the round, however, there is a perception that even though the FTSE 100 hit a new all-time high last year, many blue-chip UK shares look fairly cheap.

Look at the five biggest shares in the index, for example.

AstraZeneca trades on a price-to-earnings (P/E) ratio of 32 and Relx on 38. But Shell is on 13, HSBC just 8, and Unilever on 21.

Bear in mind those are the most valuable companies. At the other end of the FTSE 100, British Land is on a P/E ratio of 18, Persimmon 14, Londonmetric 16, Hiscox 6, and Endeavour Mining was loss-making last year so a P/E ratio is not applicable.

Still, the overall picture is clear. There are quite a few blue-chip companies trading on a fairly low P/E ratio.

Now, a P/E ratio is only one way to assess value when looking for shares to buy. So while HSBC looks cheap on that metric, I also value bank shares in other ways. But even looking at price-to-book value, for example, HSBC looks cheap to me.

What’s going on in the London market?

Sometimes, a low price is low for a reason. So, just because a share looks cheap, does not necessarily mean that it will be a bargain.

I have started the year by looking for shares to buy for my portfolio.

While I like HSBC’s large customer base, proven business, and attractive dividend yield of 6%, I remain concerned about the risks that an economic slowdown could pose to loan default rates and bank profits. So for now I do not plan to buy HSBC shares.

One share I’ve been buying

By contrast, one share I have been buying lately is JD Sports (LSE: JD).

The retailer has seen its share price fall 14% in a year – and 41% over five years. The potential for an economic slowdown I mentioned above could eat into consumer spending and hurt JD’s sales.

So, when I was looking for shares to buy this month, why did I land on JD Sports?

The market for sportswear is large. Over the long term, I expect it to remain that way.

JD Sports has proven its model in the UK. That market is still ticking over well, but the company has rolled out its formula in markets spanning the globe. Last year’s acquisition of a large US rival ate into the company’s cash but hopefully can add sales and profits in years to come.

The firm has a market capitalisation of £5bn yet expects full-year profit before tax and adjusting items to be close to £1bn. To me, the share price still looks cheap.