Should I rush to buy these penny stocks with big dividend yields today?

Investors typically look for FTSE 100 shares when they want dividend income. But overlooking these penny stocks could be a mistake.

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Penny stocks are all about getting in cheap and watching the price rise, right? Well, some of them also pay good dividends.

Mining cash

Anglo Asian Mining (LSE: AAZ) keeps popping up in my penny stock searches. It’s all about gold and copper, and the shares were on a high even before the pandemic.

The 2020 stock market crash helped keep them up there.

Buying a gold miner when everyone wanted gold might not have been a great idea. Anglo Asian shares have lost more than 60% since their 2019 peak.

There’s a huge 9.8% dividend yield on the cards, but there are a few threats.

Global risk

The firm operates in Azerbaijan, which must add political risk. Still, long-term Chinese demand, especially for copper, could keep it going.

The dividend looks unlikely to be covered by earnings this year. But the balance sheet is strong, so I’m cautiously confident.

One issue though, is that I don’t see any dividends forecast beyond 2024. Still, the City expects profit before tax to keep growing, which is a good sign.

Growth plans

At the interim stage, Anglo Asian reported a rise in copper production, though gold was down. The cash situation looked strong.

CEO Reza Vaziri said: “During the first half of this year, we were delighted to announce our strategic growth plan, which will see Anglo Asian reach its operational potential in becoming a producer of circa 36,000 tonnes of copper equivalent by 2028.”

Is the shifting focus to copper causing uncertainty and keeping the share price down? I think it could be.

Building fallout

The property slump has hit not only the house builders, but building materials firms too. Topps Tiles (LSE: TPT) supplies tiles and flooring products, and that’s a nice simple business for me to get my head round.

But Topps shares were among the hardest hit in the 2020 stock market crash, and they’re still down 23% in the past five years.

I keep coming back to this one, expecting to see the share price recovering. But while interest rates remain high and housing demand is weak, I can see investors staying away.

High inflation also means people don’t have the same cash to spare for DIY projects, so that’s an extra bit of pressure.

Big dividend

But while the Topps Tiles share price is low, the dividend yield is high. Forecasts have it at 7.8% this year, and analysts expect it to remain steady until at least 2025. Interest rates will surely be back down again by then, won’t they?

The Bank of England just decided not to raise interest rates any higher. At least not for now. So that’s also good sign.

Debt… or cash

At the interim stage, adjusted net cash stood at £19.9m. I don’t see a threat to the dividend there.

I do see a risk from a prolonged construction downturn though, which could lag any let-up in inflation by quite some time.

But for long-term passive income, this might be my top penny stock candidate.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK 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.

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