Image source: Getty Images
I am always on the lookout for undervalued, high-quality, high-yielding stocks to generate passive income. This is money earned with minimal effort once the right shares are chosen.
One such opportunity has appeared in my recent research: Telecom Plus (LSE: TEP), better known as Utility Warehouse. It is the UK’s only integrated multi-utility provider, bundling energy, broadband, mobile, and insurance into one subscription.
So why has it surfaced now, and how much could it make in passive income?
On the radar
The firm has popped up on my stock screener because of a possible acquisition. According to a 5 December Financial Times report, Telecom Plus is in talks to buy the retail energy business of Ovo Energy. This is one of Britain’s largest suppliers with around 4.5m customers.
Neither side has commented, but the deal could be worth more than £400m — a significant expansion for Telecom Plus. If completed, it could add millions of customers to the firm’s UK energy customers via its subscription-based model.
This kind of operational scaling could significantly boost its already strong earnings profile. And it is ultimately earnings growth that drives any firm’s dividends higher over time.
How do recent results look?
The firm’s full-year results to March 2025, released on 24 June, showed revenue easing back nearly 10% year on year to £1.838bn. But profitability improved: adjusted pre-tax profit rose 8.1% to £126.3m, while earnings per share climbed 9.4% to 119.2p.
Shareholders were rewarded with a 13.3% dividend increase to 94p, underlining management’s confidence in the firm’s long-term trajectory.
The half-year update published on 25 November painted a more mixed picture. Revenue grew 6.7% to £744.5m, but adjusted pre-tax profit fell 29.5% to £32.5m.
That said, customer numbers surged 19% to 1.39m, highlighting that Utility Warehouse’s growth engine remains firmly in motion.
Even with the profit dip, the board nudged the interim dividend higher by 2.7% to 38p per share.
A key risk to the firm remains energy market volatility that can depress earnings even if customer growth is strong.
However, analysts forecast that Telecom Plus’s earnings will grow by 10.3% a year to end-2028.
How much passive income can it generate?
I already have shares in another telecoms firm (BT) and other energy sector ones (BP, Shell, Harbour Energy). Buying another would unsettle the risk/reward balance of my portfolio.
But for investors without this problem, I think the firm is well worth considering.
Analysts forecast that the current 6.7% dividend yield will rise to 7.4% this year, 8% next year, and 8.6% in 2027.
Of course, yields can go up, down, or stay the same over time.
That said, a £20,000 stake at the 8.6% yield would allow investors to target £27,118 in dividends after 10 years. This also factors in ‘dividend compounding’ being used.
On the same basis, the dividend returns would jump to £241,525 after 30 years. This could give a total value for the holding of £261,525 (with the initial £20,000 included).
And this would hopefully give an annual passive income of £22,491 by that time!
It is a pity that my current holdings preclude me from investing here. However, Telecom Plus goes on my list as a replacement if any of my present holdings start to underperform.
