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.
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.