I’m searching for the best penny stocks to buy for my Stocks and Shares ISA this month. Here are two I think are especially great buys for dividend-chasing investors like me.
Michelmersh Brick Holdings
Investing in building materials businesses is more risky than usual right now. As interest rates rise and homebuyer appetite subsequently declines, new house construction is weakening.
Results from Marshalls on 31 July illustrated the perils facing companies in this market. The landscaping specialist said that like-for-like revenues dropped 13% between January to June, while adjusted pre-tax profits slumped 27%.
Yet I believe much of this bad news is baked in to the low share prices of many of these companies. Penny stock Michelmersh Brick Holdings (LSE:MBH) is one such example. Today the business trades on a low forward price-to-earnings (P/E) ratio of 9.2 times.
I believe the firm’s share price could rise strongly over the long term, making today a great time to buy. This is because housebuilding activity will need to ramp up massively in the coming decades. The government’s objective is to build 300,000 new homes every year.
As a result, demand for the bricks and other masonry products the firm manufactures looks set to balloon. It’s committed to exploiting this opportunity by using its robust balance sheet for capacity expansion and acquisitions. In November it spent an initial £6.3m to acquire FabSpeed, one of Britain’s largest brick fabricators.
I also like Michelmersh because of its commitment to returning surplus capital to shareholders. This sets it apart from most other small-cap shares that reinvest all extra cash in their operations.
Expectations of further dividend growth in 2023 leave the brickmaker with a healthy 4.4% dividend yield. The company also announced plans to recommence a £2m share buyback back in June.
Anglo Asian Mining
Base and precious metals producer Anglo Asian Mining (LSE:AAZ) is another rare penny share that pays dividends.
Indeed, the yield here for 2023 sits at an enormous 8.2%, based on a predicted dividend of 8 US cents per share. This is more than double the forward average for FTSE 100 shares.
It’s important for investors to realise that predicted earnings for this year are lower than expected dividends. But I still believe Anglo Asian will meet City estimates.
Weak dividend cover hasn’t previously stopped the miner from continuing to pay its 8-cent annual dividends in recent years. The company has a robust balance sheet to help it pay that forecast dividend (it had net cash of $9.4m as of June)
Patchy economic data from commodities-hungry China could keep the share price under pressure. But over the long term I expect Anglo Asian’s shares to fly higher as the growing green economy and rising urbanisation drive demand for copper.
The company — which owns a string of exploration and production assets in Azerbaijan — is increasingly focused on red metal production too in order to capitalise on the upcoming commodities supercycle.