6% dividend yields! 2 cheap UK shares to buy in July

Harshil Patel considers two cheap UK shares paying fairly high dividends. He’d consider them for his Stocks and Shares ISA.

| 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.

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

UK shares come in many shapes and sizes. It’s often thought that the best dividend shares are the large-caps found in the FTSE 100.

Although there are many well-established, large companies listed in the UK’s leading index, there are just as many smaller companies outside of the Footsie that pay above-average dividend yields.

Dividend-paying UK shares

For instance, PayPoint (LSE:PAY) is listed on the FTSE SmallCap index and it yields over 6%. That sounds pretty good, but it’s never just about the dividend yield to me. I’d want to see multiple reasons to invest before I’m ready to push the button. Does it have what it takes? Let’s take a look.

This technology services business runs payment terminals across a large network of convenience stores. It enables millions of consumers to make and receive payments. In addition, its e-commerce services allow customers to conveniently pick up and drop off parcels.

The trend to shop locally should continue, in my opinion. That should support footfall in shops and possibly drive more customers to use PayPoint’s services.

There’s one thing to consider though. As more bill payments move online, this part of the business could decline, which is a risk. But I believe such a decline could be offset by growth in the parcel business.

Should I buy?

PayPoint’s above-average dividend yield is supported by strong cash flow and a sound balance sheet. I also like that it has an 18-year history of distributing dividends to shareholders.

I have to bear in mind that its share price performance has been lacklustre over several years. And I’d by no means call it a growth stock. That said, it looks relatively stable. Despite many shares taking a tumble, Paypoint has managed a 3% gain over the past year.

With a price-to-earnings ratio of just 10, this share looks cheap to me. And all things considered, I’d buy it for my Stocks and Shares ISA.

A high-quality business

Another small company with a 6% dividend yield is Jarvis Securities (LSE:JIM). With a market capitalisation of just £98m, this online stockbroker is relatively small. But it has several qualities that stand out to me.

For instance, it’s a growing, high-quality and high-margin business. It recently announced a set of record-breaking results, for a third year running. Profits rose by 12% in 2021, and the profit margin was high at over 50%.

Jarvis is cash-generative and is good at distributing profits to shareholders in the form of dividends. Like PayPoint, it holds a double-digit record of consecutive dividend payments. That’s exactly the kind of reliability I look for in the best dividend shares.

Skin in the game

When looking for suitable investments, I often look at whether senior management team members own shares in the business. Jarvis certainly stands out here. The CEO and his family own more than 50% of the shares. I consider that to be remarkable ‘skin in the game’.

But I need to be aware that as the stock market takes a tumble in the near term, Jarvis could potentially see fewer transactions than last year. That said, it’s a diversified business with ample experience to manage through testing times.

Overall, I’d happily buy these shares for my own long-term portfolio.

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.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended PayPoint. 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »