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When looking for methods to generate growing quantities of passive revenue, I believe it’s pure to gravitate to the UK’s greatest and best-known firms.
For an additional dollop of diversification, nonetheless, I reckon it’s additionally price wanting somewhat additional down the market spectrum. Reality is, there are many smaller companies boasting nice data of elevating the amount of money they return to buyers yearly.
Let’s take a better take a look at one from the FTSE 250.
Hovering share value
Regardless of having a market cap approaching £2bn, I think OSB Group (LSE: OSB) — previously OneSavings Financial institution — isn’t on the lips of most retail buyers. Nevertheless, the Chatham-based specialist mortgage lender and financial savings supplier’s share value has been completely flying in 2025. We’re speaking a few acquire of round 35%!
Causes for this embody reassuring working efficiency, progress in its web mortgage ebook, and share buybacks. The final of those can point out that administration thinks the inventory is undervalued.
Clearly, all this excellent news received’t have finished any hurt to OSB’s revenue credentials both.
Passive revenue powerhouse
Proper now, this inventory boasts a forecast dividend yield of 6.5% for 2025. For perspective, that’s nearly twice the yield of the mid-cap index as an entire.
OSB has additionally been elevating its dividend almost yearly because it first began paying them 10 years in the past. I say ‘almost’ as a result of holders didn’t obtain something in 2020. Again then, the Financial institution of England requested that each one banks and lenders droop dividends as a precautionary measure as a result of uncertainty of Covid-19. However issues kicked again in a yr later.
After all, a chunky dividend isn’t a lot good if there’s solely a small likelihood it’s going to truly be paid. However on this entrance, I don’t assume OSB’s present shareholders must be anxious. Assuming analysts projections are on the cash, this yr’s complete money return must be lined over twice by anticipated revenue.
So, what may go incorrect?
For steadiness, it’s price contemplating how this firm’s present momentum may stall or reverse and probably put that passive revenue prone to being minimize. Pretty much as good because the dividends are, the share value hasn’t been a stranger to volatility over time.
The truth that OSB operates in a cyclical sector can’t be ignored. It may simply be impacted by wider financial wobbles and/or a housing market downturn. Regulatory adjustments may additionally take the shine off the funding case.
So far as the corporate itself is anxious, buyers will need to see indicators that margins aren’t being eroded and steerage is maintained. A Q3 replace is due in early November.
I’d additionally favor to not see a lot director promoting in latest months. Whereas that is comprehensible given how properly the shares have carried out, a bit of shopping for wouldn’t go amiss.
Nonetheless low-cost
These considerations apart, I believe this inventory warrants extra consideration from buyers trying to construct an revenue stream from the inventory market. That is particularly because it nonetheless solely trades for the equal of seven occasions forecast earnings.
That valuation is sweet for shares within the financials sector. But it surely smacks of a possible cut price relative to the UK shares as an entire.
