3 penny stocks I’d buy for income and growth

Rupert Hargreaves takes a look at three penny stocks he’d buy for his portfolio, considering their income and growth potential.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Penny stocks aren’t known for their income and growth qualities. More often than not, these tend to be smaller companies that struggle to earn a profit, let alone distribute cash to investors with dividends. 

However, there are some penny stocks out there that appear to have these qualities. I’d buy these equities for my portfolio today. 

Penny stocks for income 

The first company on my list is the photo booth and laundry operator Photo-me International (LSE: PHTM). This penny stock has always been an income champion. Its operations throw off enough cash to allow management to reinvest in the business and return capital to shareholders.

While the firm suspended its dividend in 2019, the group has historically paid out around 70% of earnings per share. Recent trading has been better than expected. This leads me to think the company may reintroduce its dividend soon.

With earnings per share expected to hit 7.6p in 2022, up from 4.9p for 2020, this implies the stock could offer a dividend of 5.3p per share next year. I should note there’s no guarantee this will happen. It’s only speculation at this point. Possible risks include another coronavirus outbreak and higher than expected costs. 

Still, even considering these risks, I’d buy the income champion for my portfolio of penny stocks today. 

Gap in the market 

Another company I’d buy is the consumer finance business Morses Club (LSE: MCL). I recognise this stock may not be suitable for all investors, due to the ethical considerations of the home-collected credit market. 

However, I see an opportunity here. Many of the company’s peers have been forced out of business during the past few years as regulators have clamped down on the sector. Morses has survived. Therefore, it may be able to take advantage of the gap left in the market, although this isn’t guaranteed. 

Recent growth trends are positive. Customer numbers in the digital division for short-term and long-term lending products have increased by 40% in the most recent quarter, compared to the beginning of 2021. 

As such, considering its growth potential and 3.8% dividend yield, I’d buy the firm for my basket of penny stocks today. 

Trading for growth

The final company I’d buy for my portfolio of penny stocks is the currency management specialist Record (LSE: REC). 

This firm is projected to report an 80%+ increase in net profit this year after winning several new contracts. Management is expected to increase the company’s dividend to reflect this with a 50% increase in the payout pencilled in by analysts. This would leave the stock yielding 4.3%. 

While there’s always a risk the company may lose the contracts it’s signed to manage currency, I’m confident the enterprise can build on this growth in the years ahead. Another risk the business may face is higher costs due to increased regulation. 

Despite these challenges, it looks to me as if Record is currently firing on all cylinders. That’s why I’d buy the company for my portfolio today. 

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.

Rupert Hargreaves 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.

More on Investing Articles

Young black colleagues high-fiving each other at work
Investing Articles

2 FTSE 100 value stocks I’d buy for my Stocks and Shares ISA in March!

Now could be a great time for fans of FTSE 100 value stocks to go investing. Here are a couple…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Looking for value stocks? Here’s 1 I’d buy and 1 I’d avoid!

This Fool delves deeper into two value stocks she’s had her eye on and explains why she’s bullish on one,…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

With the Airtel Africa share price in pennies, is it a bargain?

With the Airtel Africa share price having slumped by a quarter in just one month, this shareholder considers some of…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Are these 2 defensive FTSE 100 stocks shrewd buys after recent updates?

This Fool takes a closer look at these FTSE 100 stocks. She admires their defensive traits -- but does that…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The FTSE 100 closes up after full-year results from leading UK firms – are they buys?

Earnings season brings about a lot of ups and downs for the FTSE 100. Yesterday had some particularly good releases,…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy NVIDIA stock as a British investor?

NVIDIA stock is up two-thirds this year alone. Our writer considers some pros and cons, specifically given that he is…

Read more »

Investing Articles

With £2,000 in excess savings, I’d buy 41 shares in this Warren Buffett dividend stock

Stephen Wright thinks one of the best dividend shares to buy right now might be a Warren Buffett stock that’s…

Read more »

Investing Articles

How many Aviva shares do I need to collect a £100 monthly income?

Aviva shares are well suited for passive income purposes. Our writer works out how many would be needed for a…

Read more »