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.

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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.

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