Despite recent price struggles, TP ICAP (LSE: TCAP) remains one of my favourite passive income stock picks. It’s not as popular as a major FTSE 100 blue-chip like Legal & General, but it’s often the under-the-radar stocks that really shine when it comes to dividends.

Here’s why I think it’s a solid candidate to sit quietly in the background and churn out cash in an ISA or SIPP.

What passive income really means

Passive income is a bit like earning rent from an Airbnb — but without the leaking boiler and constant maintenance. With dividend shares, the company does the hard work, then sends you a slice of profit a couple of times a year.

The idea is simple: hold for years, let the income roll in, and ideally watch your savings grow faster than inflation. But payouts aren’t guaranteed (they can be cut), so identifying sustainable dividend payers is critical.

Why TP ICAP stands out

TP ICAP is one of the largest interdealer brokers in the UK, helping institutions from around the world trade bonds, currencies and other financial products.

In 2024, revenue edged higher to roughly £2.25bn, and profits before tax also grew, showing the core business is making solid money. On top of that, management has been confident enough to run share buybacks alongside rising dividends, which is usually a positive sign.

Now, first up, it’s important to note this is not a growth stock by any means. The share price is up a very modest 13.8% in the past five years. But here’s why income investors may want to consider it — when adjusting for dividends, its total five-year return jumps to 80%.

That equates to an annualised return on investment (ROI) of 12.47% per year.

If those numbers held, a £5,000 investment over 10 years would balloon to £17,339 (with dividends reinvested).

But let’s not get ahead of ourselves — after all, past performance is no indication of future results. Due to its excellent track record and solid cash coverage, I think the company has a better chance than others — but it’s not without risk.

Challenges ahead

TP ICAP offers specialised services that could fall out of favour if banks change how they trade. Recently, analysts have noted the potential for AI to disrupt its business model. To avoid this and other possible hiccups, it must keep innovating to meet the demands of an evolving financial landscape. 

It’s also heavily reliant on market volatility. If this dries up and trading volumes fall, profits – and eventually dividends – could come under pressure. But if history is anything to go by, I wouldn’t expect markets to remain subdued for long.

Final thoughts

There’s no such thing as guaranteed passive income in the stock market — every investment comes with some risk. Mature and well-established companies are an obvious choice for stability, but that doesn’t mean they only exist on the FTSE 100.

Every blue-chip today was once a smaller, up-and-coming business. Sometimes, identifying such stocks before they hit the big time can be the most profitable strategy.

At The Motley Fool, we’re always hunting for those hidden gems with long-term compounding potential.