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6.3% dividend yields! 2 of the best penny stocks to buy with £500 each

A pile of British one penny coins on a white background.
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Extreme weakness on global share markets isn’t dampening my appetite to buy UK shares. I’m a long-term investor, so temporary share price volatility doesn’t worry me. I believe current share price weakness allows me to pick up the best stocks to buy at a cheaper price.

History reveals that the average long-term investor makes an average yearly return of 8%. This figure also takes in periods when stock markets are crashing. So why would I stop buying UK shares for my Stocks and Shares ISA? Snapping up stocks that have recently plummeted in value gives me the chance to supercharge the returns I could potentially make too.

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2 penny stocks I’d buy right now

I think now could be a particularly good time to buy penny stocks as well. Clearly I need to be careful here as smaller-cap stocks (generally speaking) have less financial strength to withstand economic shocks than larger companies. But recent stock market sell-offs have seen top-quality and well-capitalised penny stocks sold off along with the more vulnerable.

Here are what I think are two of the best penny stocks to buy as stock markets slump. I’d happily spend £500 on each of them.

Jaw-dropping value

It’s no surprise that Coats Group (LSE: COA) has slumped in value recently. The threads, zips and trims manufacturer has fallen as concerns over runaway inflation have exploded. As well as threatening to push up costs, rocketing prices could deal consumer confidence a significant blow. As a consequence smacking sales volumes across the entire clothing market could sink.

It’s my opinion however, that Coats Group could now be too cheap to miss. The world’s biggest threads manufacturer now trades on a forward PEG ratio of just 0.2, well below the bargain-basement benchmark of 1. As a long-term investor, I’m excited by the potential profits this penny stock could generate as the global population expands and wealth levels in emerging markets soar. And don’t forget that the fast-fashion market is expected to keep growing rapidly too.

6.3% dividend yields!

I think Civitas Housing Group (LSE: CSH) could be one of the best penny stocks to buy, as concerns over the economic recovery grow. As the name suggests, this UK share specialises in providing accommodation, giving it exposure to one of the most stable areas of the property market. What’s more, the rents it receives are paid directly to tenants by local authorities, meaning it doesn’t have to worry about dangers like occupiers losing their jobs.

Today, Civitas trades on what I consider to be an undemanding forward P/E ratio of 16 times. Given those excellent defensive qualities, I think this makes the penny stock something of a bargain. What’s more, at current prices of 89p, the company carries an enormous 6.3% dividend yield.

I’d buy this UK share despite the fact that its acquisition-led growth strategy leaves it open to overpaying for an asset, or realising below-expected returns.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Coats Group. 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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