An income share offering a forecast 7.8% dividend yield deserves attention from anyone hunting reliable passive income. It is more than double the current FTSE 100 yield of 3.1% and comfortably ahead of the FTSE 250’s 3.4%.
Telecom Plus (LSE: TEP) stands out thanks to its unusually sticky customer base and long record of steady cash generation. With dividends covered by resilient earnings and a business model built for consistency, it looks a rare combination of quality and yield.
So how much second income from dividends could investors make from it over time?
How do the dividend forecasts look?
Over the past five years (from the start of 2021), the utilities and telecoms giant increased its dividend from 57p to 94p.
That generated respective average annual dividend yields of 4.5%, 3.7%, 4.2%, 5.1%, and 5.4%. These yield variations, despite rising dividends, illustrate how they can go up and down over time.
Nonetheless, analysts forecast its dividend yield will be 7.4% this year, 7.7% next year, and 7.8% in 2028.
What does this mean for dividend income?
As a long-term investor, I always judge a firm’s dividend returns profile over a 30-year investment cycle. The period incorporates first investments made around 20 and early retirement options appearing at about 50.
In Telecom Plus’s case, a £20,000 investment at the forecast 7.8% dividend yield would make £23,519 in payouts after 10 years. This also assumes the dividends are reinvested into the stock — a process known as dividend compounding. It is like leaving savings to grow in a bank account, but its effect on dividend returns over time can be extraordinary.
After 30 years on this basis, the dividend payouts would rise to £186,058. The total value of the holding by then (including the £20,000 stake) would be £206,058. And that would generate a yearly income (from dividends alone) of £16,073.
Does the core business support such payouts?
The firm is best known for its Utility Warehouse brand. It is the UK’s only multi-service utility provider, bundling all four core home services (energy, communications, mobile, and insurance) — into a single bill. This business model has led to unusually high customer retention and lower operational costs.
A risk here is a shift in utility regulation or commission structures that could squeeze margins. Another is that rising wholesale energy costs or supply‑chain pressures could pressure profitability.
Nevertheless, analysts forecast the firm’s profits will rise by an average of 7.8% a year to end-2028 at lease. And it is this that ultimately drives any firm’s dividends higher.
My investment view
For income investors, that combination of dependable earnings growth, high customer loyalty, and proven dividend record is hard to overlook. The company’s subscription‑style model gives it a level of visibility that many high‑yield stocks simply lack.
With payouts rising steadily and the underlying business continuing to expand, the shares offer a rare blend of stability and long‑term income potential. For those seeking a reliable second income stream, I think it is a stock that merits serious consideration.
I would buy it but I already have a holding in BT. Buying another stock in the sector would unbalance my portfolio. Given that, I have my eye on other high-yielding stocks in different sectors that look very undervalued.
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Simon Watkins owns shares in BT.
