Many investors naturally associate penny stocks with high-risk, high-reward enterprises that could either fly high or crash and burn. But that overlooks the fact that there are many penny shares out there that do in fact pay regular income to shareholders.
Here are three such dividend-paying penny stocks that I’m planning to buy in the weeks ahead. While their dividends aren’t guaranteed, I’m reassured by how well-covered each prospective payout appears.
Riding the wave of global trade
Near the top of my buy list right now is leading international shipbroker Braemar (LSE: BMS).
A shipbroker acts as a specialist intermediary between shipowners and charterers that need to transport cargo. And Braemar operates across all time zones and major shipping hubs, including Shanghai, Singapore, Mumbai, and Sao Paulo.
As well as chartering though, the firm provides expert advice in investment and risk management. So its offerings are well diversified, making its income less cyclical.
In a trading update back in March, the company announced it had achieved record revenue and profitability for the financial year ended 28 February. The shipbroker expects underlying profit of at least £20m from revenue of £150m.
That would put the stock on a bargain price-to-earnings (P/E) multiple of about six. The shares offer a dividend yield of 4.1%. The payout is healthily covered three times by anticipated earnings.
One risk worth considering is that the shipping sector will need decarbonising, which will cost billions. But Braemar also runs a carbon offsetting brokerage service, so looks very well positioned.
Solid foundations
Another penny stock offering solid income prospects is Billington Holdings (LSE: BILN). This is one of the UK’s leading structural steelwork specialists.
The company has successfully targeted higher-growth areas to supply steel to. These range from movie studios (such as Shepperton Studios) to data centres, e-commerce warehouses, and renewable energy projects.
Now, obviously there is weakness in the construction industry at the moment. But management just announced that current trading remains in line with market expectations.
As a result, brokers are still anticipating a 30% jump in sales to reach £115m this year. Meanwhile, profits are pegged to rise to £8m, underpinning a dividend per share of 20p (from 15.5p last year).
Importantly, this payout is expected to be covered 2.5 times by earnings. This is in line with the responsible dividend coverage the firm has provided in recent years.
The forward dividend yield stands at 5%.
The pawn industry
Finally, I’m highlighting Ramsdens Holdings (LSE: RFX). This is a North Yorkshire-based pawnbroker with a significant foreign currency exchange operation.
The company has 158 stores across the UK (excluding two franchised stores) and plans to open another six in the second half of this year. It also has a growing online presence.
In its interim results for the six months to 31 March, gross revenue increased by 33% year on year, reaching £39m. Meanwhile, profit before tax soared by 68% to £3.7m.
Given this strong performance, the interim dividend was boosted 22% to 3.3p per share. The stock yields 3.5% and the payout is covered 2.3 times by historic earnings. The forward P/E of 11 seems great value.
A looming recession could threaten the growth of the jewellery selling side. But due to the unfortunate cost-of-living crisis, I see overall business remaining robust.
