Exploring a Top FTSE 250 Stock for Passive Income: ME Group International’s Promising Dividend and Growth Potential

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My top picks for passive income stocks come from companies that are experiencing growth in both cash flows and dividends. Within the FTSE 250 index, one standout is ME Group International (LSE: MEGP), which checks many important boxes.

As of 15 May, with the share price hovering around 168p, the anticipated dividend yield for the fiscal year ending in October 2025 is about 5%. This is impressive, especially considering that earnings, cash flows, and dividends have been on the rise as the company continues to grow. In comparison, the overall yield of the FTSE 250 is approximately 4.2%, making ME Group a more attractive option.

The company’s strong cash flow is noteworthy. ME Group operates in 18 countries, focusing on the consumer market with its instant-service vending equipment. Their range includes photobooths, unattended laundry services, digital printing kiosks, food service vending, and various other vending machines catering to children’s entertainment, amusement, and business services.

The company has demonstrated a stable and growing cash flow over multiple years, supporting increasing dividend payments, especially notable since 2020, despite a temporary halt during the pandemic. Analysts are optimistic about the company’s earnings and dividends continuing to rise in the coming years, and the share price has been reflecting the growth in the underlying business.

Growth has been achieved both organically and through acquisitions, with diversification into new markets and technical innovations driving expansion. The outlook remains positive, as indicated by Serge Crasnianski, the chief executive and deputy chairman, in the full-year results report in February. He highlighted the company’s “record” financial performance and progress in its long-term growth strategy, with laundry operations identified as a key growth driver.

Despite the company’s success, it’s important to note that the current momentum has been built over many years through long-term relationships with major site owners, placing equipment in high-traffic areas like supermarkets, shopping malls, and transport hubs. This strategy has contributed to the steady cash flow the company enjoys today.

However, risks such as competition and economic downturns remain. For instance, the share price took a hit in 2018 when the company had to revise its profit guidance for 2019 due to an oversupply issue in its Japanese photo identification business. While there’s always the potential for challenges, ME Group’s current execution of its growth strategy appears solid.

Given these factors, ME Group merits further investigation for those looking to add to a diversified passive income portfolio.

This article originally appeared on The Motley Fool UK in 2024.

Disclaimer: Kevin Godbold does not own shares in any of the companies mentioned. The Motley Fool UK has no position in any of the shares mentioned. The views expressed are those of the author and may not reflect those of The Motley Fool UK. We believe in considering a wide range of insights to become better investors.