3 secret income stocks to buy in June

Paul Summers thinks small-cap stocks can be a great source of income as well as growth. Here are three flying under investors’ radars.

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It’s inevitable that many investors gravitate to large, familiar companies when looking for dividends, even though their payouts aren’t necessarily more secure. With this in mind, I’m going to highlight three ‘secret’ income stocks from lower down the market spectrum that I’d be just as happy to buy in June.

Premier Miton

AIM-listed asset manager Premier Miton (LSE: PMI) is first up.

Thanks to some great performances from its funds, the firm has been attracting more investors. By the end of March, Premier had £12.6bn in assets under management. This compares favourably to the £9.1bn by this point in 2020. At £6.2m, pre-tax profit over the last interim period came in 17% higher. 

On dividends, Premier didn’t disappoint either. It recently hiked the interim payout by 48% to 3.7p per share. Such a jump is indicative of a very confident board. Right now, the small-cap’s shares have a chunky forecast yield of 5.2%. This payout is also safely covered 1.5 times by expected profits.

Although there can be no guarantees in the stock market (and Premier’s fortunes will be dictated by some things beyond its control), I think all this makes the company a good dividend pick. Taking into account its strong financial position, the shares are reasonably priced at 13 times earnings.

Gateley

Legal services firm Gateley (LSE: GTLY) looks to be another decent income stock from the small-cap world, in my opinion. 

In last week’s trading update, the business stated that trading had “continued to improve” over H2. It’s now predicting that full-year revenue will be at least £120m — up 9.3% on the previous year. Pre-tax profits will also be up at least 8.1% to £16m.

Analysts have the company returning 7.98p per share in dividends. That becomes a yield of 4% based on last Friday’s closing share price. Again, the payout looks likely to be sufficiently covered by profits (1.6 times). Like Premier, Gately has a reassuringly large net cash position (£20m). 

As far as drawbacks go, I do need to remember that Covid-19 could continue impacting companies offering professional services. It’s also worth mentioning that the free float (the number of shares available to buy on the market) is relatively low, making it a fairly illiquid stock. This can potentially lead to big increases in the share price. Sadly, the reverse is also possible. 

H&T

Pawnbroker, gold purchaser and jewellery retailer H&T (LSE: HAT) may not be everyone’s cup of tea, but I think it has good dividend credentials.

While only a prediction, analysts have it returning 7.46p per share in FY21. That gives the lowest yield of the three income stocks discussed here (2.7%). However, H&T also has the highest amount of dividend cover (2.6 times profits). Of course, the payout could end up being better if trading goes well over the rest of the year.

Clearly, H&T’s outlook is also dependent to some extent on what happens regarding Covid. Even though the firm provides “essential financial services” and has an online presence, it really needs high streets to remain open. Based on the success of the vaccination programme so far, I’m optimistic. Even so, Boris Johnson may still end up changing his road map in June

On a more positive note, a strong balance sheet suggests H&T is capable of weathering further storms. A rebounding gold price won’t do any harm either.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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