Should I buy this engineering penny stock for dividends and growth?

Jabran Khan takes a closer look at this penny stock. Could this engineering business with a worldwide presence be a good buy?

| 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.

Young lady working from home office during coronavirus pandemic.

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.

One penny stock I’m considering for my holdings is Trifast (LSE:TRI). Could this small-cap be a good addition to my holdings for long-term growth and returns? Let’s take a closer look.

Industrial fastenings

As a quick introduction, Trifast is an engineering, manufacturing, and distribution business that specialises in industrial fastenings and components to many industries. It has a worldwide presence and operations in the UK, Europe, US, and Asia. Some of the sectors it serves include electronics, automotive, and domestic appliances.

It is worth remembering that a penny stock is one that trades for less than £1. As I write, Trifast shares are trading for 90p. At this time last year, the stock was trading above these levels at 140p, which equates to a 35% drop over a 12-month period.

A penny stock with risks

I believe Trifast shares have dropped in recent times due to macroeconomic headwinds. These headwinds include soaring inflation, the rising cost of raw materials, and the global supply chain crisis. All the issues noted could have a detrimental impact on Trifast’s operations, sales, and performance.

Rising costs of materials could impact Trifast’s profit margins. If costs are creeping up, sales prices and overall sales could be affected. This could then affect performance and returns too.

The global supply chain could see Trifast’s worldwide operations affected, especially from a manufacturing and then sales perspective. Again, this could affect performance and investor returns too.

The bull case and what I’m doing now

So to the positives then. I like Trifast’s business model in that it creates and sells vital components across a multitude of industrial sectors. Furthermore, it has a worldwide presence, which could help boost performance and investor returns. There is still room for it to grow as its primary source of revenue is Europe currently.

Next, Trifast has a consistent record of performance. I do understand that past performance is not a guarantee of the future, however. Prior to the pandemic, performance was robust but has dropped off slightly since. Full-year results for 2022 are due imminently and I will be reviewing them with a keen interest.

Trifast shares would boost my passive income stream through dividend payments. The stock’s current dividend yield stands at just over 2.5%. This is higher than the FTSE 250 average, which is just under 2%. It is worth remembering that dividends are not guaranteed and can be cancelled at the discretion of the business at any time.

Finally, Trifast shares look decent value for money at current levels on a price-to-earnings ratio of 15. There is every chance the recent share price drop has made the shares more attractive and they could bounce back to former highs after the current economic uncertainty subsides.

Overall I like the look of Trifast shares. This is primarily due to the company’s business model, presence, and profile, as well as the dividend payments on offer. I would add the shares to my holdings. I do expect some headwinds due to macroeconomic issues out of its control, however.

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.

Jabran Khan 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.

More on Investing Articles

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »