2 penny shares I think offer income and growth

Our writer reckons these two UK penny shares could offer him passive income as well as the prospect of share price growth.

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One of the attractions of penny shares is the potential for share price growth. The thinking is that with a low starting price, there is lots of room for upwards growth. Of course, things don’t always work out that way in practice. I like penny shares that offer some potential for price growth but also passive income. Here are two I would happily buy today.

Penny shares for income and growth: Assura

The healthcare property owner Assura (LSE: AGR) trades at around 71p per share. Currently, its quarterly dividend adds up to an annual yield of 4.1%. That is attractive to me. It might not sound much for a 71p share. But if I bought 1,000 Assura shares today, the cost would be around £710 and I would be looking at prospective dividend income of just under £30 per year.

The company has consistently raised its dividend annually since it listed over a decade ago. That isn’t a guarantee that it will keep doing so — dividends can always be cancelled. But one reason I like this penny stock is that its large portfolio of healthcare properties ought to provide fairly reliable cash flows. There will be long-term demand for assets like ambulance centres and doctors’ surgeries, such as Assura owns.

The company also has growth prospects in my view. In the six months to September, it added 27 new assets to its portfolio. It has also been benefitting from its cheapest ever debt. But managing large property portfolios brings risks too. Net debt of over £1bn needs to be serviced, so any downturn in demand from renters could mean debt repayment is prioritised over dividend payments.

Penny shares for income and growth: Lloyds

Cheaper than Assura at around 49p per share is Lloyds (LSE: LLOY).

Yes, that’s right. The well-known financial services group which owns banks such as Lloyds, Bank of Scotland, and Halifax has a market capitalisation of around £35bn, yet it trades as a penny stock.

I reckon the current price offers upside. The bank has a huge operation with millions of customers already. It has the largest mortgage book in the country and has consistently been profitable on a full-year basis, even during the pandemic. The current trajectory for this year’s earnings suggest that the bank trades on a prospective price-to-earnings multiple in single digits. While many shares have cheap looking P/E ratios, few have as strong an underlying business as Lloyds in my opinion.

As well as growth prospects, Lloyds numbers among the penny shares that offer income. The current yield is 2.5%. But that is based just on the interim dividend. If the company announces a final dividend for the year – as I expect it to do, although it isn’t certain – the prospective yield will be higher.

Lloyds has risks, of course. Any economic downturn could lead to increased defaults. That would likely hurt its profitability. But I continue to hold it in my portfolio and am considering adding more at the current Lloyds share price.

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.

Christopher Ruane owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking 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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