Does a 7.5% yield make this passive income stock a slam-dunk buy?
With the UK stock market taking a tumble, the number of passive income opportunities is on the rise. And right now, thereâs a growing list of high-yield FTSE stocks for investors to explore.
Of course, experienced investors know that a high yield can often be a warning sign. But there are always exceptions, allowing smarter investors to unlock a chunky passive income.
With that in mind, letâs take a closer look at a 7.5%-yielding stock on offer right now.
An emerging opportunity?
When it comes to pet care, Pets at Home (LSE:PETS) is the UKâs leading enterprise. The company’s built an entire ecosystem of retail and veterinary solutions, turning it into a one-stop shop solution for pet owners across the country.
Yet, despite having this dominant market position, its recent performance has been far from perfect. Throughout 2025, management issued multiple profit warnings due to a combination of headwinds. On the costs side of the business, increases to the Minimum Wage and employer National Insurance Contributions have both taken their toll.
Meanwhile, on the sales side of the equation, demand for premium pet food has waned as consumers have started moving away from legacy brands and into the arms of newer direct-to-consumer solutions. And combined, these factors have put significant pressure on profit margins.
That certainly helps explain why the Pets at Home share price has taken a near-25% tumble over the last 12 months. Yet even with these challenges, dividends have continued to flow. And looking out to the horizon, they might even be on track to grow.
Incoming catalysts
Management isnât blind to the pressures facing its business. And action has already been taken to deliver £20m in annualised savings through various initiatives, with benefits expected to begin emerging later this year.
Furthermore, the record number of new puppies and kittens registered during the pandemic are now entering mid-life where vet visits are less frequent. But as they get older, that dynamic will change, creating a long-term, multi-year demand tailwind in the coming years.
In the meantime, the firmâs joint venture with Vet Group is chugging along nicely, expanding its capacity to meet this incoming demand surge, while still delivering impressive free cash flow. And when combined with the excess cash generated by the rest of Pets at Homeâs businesses, dividends remain comfortably cash-covered even with a chunky 7.5% yield.
So is this a no-brainer for passive income investors?
What to watch
Assuming management’s able to get things back on track, this might indeed be a rare opportunity to lock in a 7%+ yield. However, itâs important to recognise that success isnât guaranteed, especially considering regulators have taken aim at the UK veterinary sector.
With an investigation currently underway by the Competition and Markets Authority (CMA) about Pets at Homeâs dominant position, the company could end up facing restrictions over pricing and further expansion. The findings of this investigation have yet to be published and so, for now, remain an overhanging source of uncertainty.
For now, the dividend appears to be here to stay. But if the CMAâs investigation comes to a negative conclusion, the stock could have much further to fall â a risk that investors will need to consider carefully. Thatâs why Iâve got my eye on other lower-risk passive income opportunitiesâ¦
The post Does a 7.5% yield make this passive income stock a slam-dunk buy? appeared first on The Motley Fool UK.
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Pets At Home Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
