2 cheap shares to buy now for dividends

Looking for cheap shares to buy now for his portfolio, our writer is considering two income-generating UK penny stocks.

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What makes shares good value? I have been looking for cheap shares to buy now for my portfolio. I have identified a couple that I think have promising business prospects and trade at an attractive valuation. Both pay dividends.

Although the two shares are penny stocks, that is not why I see them as cheap. Instead, I like their long-term commercial outlook. I reckon their current share price could make them attractive and good value additions to my portfolio.

Photo-Me has vending expertise

The vending machine expert Photo-Me (LSE: PHTM) does a lot more than just operate photo booths. With a range of business lines stretching from children’s rides to fresh juice machines, Photo-Me has learnt how to profit from its experience of running all sorts of vending machines.

That allows it to make attractive profits. From a spur-of-the-moment orange juice on a hot day to an urgently needed identification photo, the company’s customers tend to focus on satisfying an immediate need, not necessarily on how much it costs.

The pandemic hurt revenues and one risk I see is that ongoing lockdowns in Asian markets could continue to dampen revenues and profits. But the business is performing strongly overall and has brought back its dividend. I see its self-service laundry machines as a source of potential growth in coming years.

The shares currently yield 4% even with the dividend still far beneath its pre-pandemic level. The price-to-earnings ratio of 13 looks cheap to me given that I expect further earnings recovery this year. The stock trades for less than the chief executive recently offered in an unsuccessful takeover bid. I would consider these to be cheap shares to buy now for my portfolio.

More cheap shares

Another company that I think looks like good value for my portfolio right now is Lookers (LSE: LOOK). That may come as a surprise. After all, the Lookers share price is already up 24% this year. It has climbed 20% in 12 months.

But despite the share price rise, a price-to-earnings ratio of five looks like a bargain to me. Earnings per share came in at 15.7p last year. As Lookers sits among the ranks of UK penny shares, those earnings relative to the share price make me think it could be a cheap addition to my portfolio. Admittedly earnings were far stronger than the prior year, when the company had reported a loss. But that reflected an accounting scandal that I think has now been fully resolved.

Lookers looking ahead

2022 is ahead of 2021 so far on an underlying profit basis. The company said in its annual results last week that it is seeing robust consumer demand. There are still clouds on the horizon. For example, Lookers noted that inflation was a possible risk to its profitability. But for now at least, demand for vehicles from customers is high. Supply constraints mean profit margins are strong.

Like Photo-Me, Lookers restored its dividend recently and currently yields 3%. I reckon the company could increase its dividend in coming years, although that is not guaranteed. From both a growth and income perspective, I would consider adding Photo-Me to my portfolio now.

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 considered so you should consider taking independent financial advice.

Christopher Ruane 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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