The FTSE 250‘s Telecom Plus (LSE: TEP) ticks my boxes as a top dividend stock. I’d consider it for inclusion in a portfolio of shares focused on passive income.
I’d aim to diversify between several companies, mainly in the FTSE 100 and FTSE 250 indices.
Stable business, big yield
Dividend-paying companies are most attractive to me when backed by well-established, larger businesses. So I like the £1.19bn market capitalisation of Telecom Plus (as of 8 March), which puts it in a category above smaller-cap enterprises.
The firm started in the late 1990s, so it’s been around for a while. For most of that time, it’s been growing earnings from year to year. These days, the company is a leading multiservice utility provider and trades using the Utility Warehouse brand. That’s another big tick on my checklist because the sector tends to be stable and good for supporting dividend-paying businesses.
But let’s cut to the important bit – the dividend. With the share price in the ballpark of 1,512p, the forward-looking yield is around 5.8% for the trading year to March 2025. That looks like a cheap valuation, to me. It’s a decent jumping-off point to start a passive income journey with the enterprise by owning some of the shares.
On top of that, the company has a strong record of growing its shareholder payments most years. For example, City analysts expect the dividend to increase by about 5% this year and next. The prospect of a growing income stream from the shares is attractive to me.
This table shows the firm’s performance with dividends over the past few years:
| Year to March | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024(e) | 2025(e) |
| Dividend per share | 50p | 52p | 57p | 57p | 57p | 80p | 84.4p | 88.5p |
| Dividend growth | 4.17% | 4% | 9.62% | 0 | 0 | 40.4% | 5.5% | 4.86% |
There’s no cut to the dividend in that record – not even through the pandemic. Meanwhile, the compound annual growth rate (CAGR) of those payments is running just below 10%. I won’t get that kind of increasing return by stuffing money in a bank account!
Can the good times continue?
The business even has a strong-looking balance sheet, which underlines how well it performs in cash terms.
So what are the negatives? There must be some, surely. I reckon the biggest risk is competition may eat into the company’s growing revenue and earning streams.
Telecom Plus operates by selling its services via a network of ‘Utility Warehouse Partners’, or agents, in other words. My way of imagining the setup is to think of Joe next door leaning over the garden fence and trying to flog the service to me.
For a long time, I was sceptical about whether such an approach could endure. But the firm’s multi-year growth record has so far proved me wrong. Meanwhile, recent outlook statements from the directors have been upbeat.
As with any stock, there are risks. But, on balance, I like the way the company has been performing with dividends. I’d consider it now for deeper research with a view to including the stock in a portfolio of dividend-payers.
This post was originally published on Motley Fool
