2 dividend-paying penny shares I’d happily own

These two penny shares have caught our writer’s eye for a combination of income prospects now and business growth potential in future.

| More on:
British Pennies on a Pound Note

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.

While it is possible to find some penny shares that are real bargains, some turn out to be complete duds. Here are two I would happily buy for my portfolio if I had spare cash to invest. Both pay dividends.

Topps Tiles

I already own Topps Tiles (LSE: TPT) but would be happy to ‘Topp’ up my holding!

The company is responsible for one in every five tiles sold across the UK. It also sells other floor coverings. With an extensive network of stores open both to trade and retail customers, a sizeable digital operation and deep market understanding, I think the company is here for the long haul.

There are challenges though. Revenues in the first half slid 6% compared to the same period last year, and before tax the company swung from a £1.7m profit to a £1.5m loss. A weak housing market could see sales fall further if building rates drop.

But as a long-term investor, I think the share is well-positioned. I like its 8.9% dividend yield.

After falling 16% in the past year and 37% over five years, how should I see the share? Is it an overlooked bargain or as a weakly performing business with a share price in long-term decline?

There could be validity in either view. I own the shares and plan to keep holding them because, although the current trading environment is difficult and could see profits fall, I see Topps as well run and smartly positioned to keep a key role in a market I expect to benefit from long-term customer demand.

NWF Group

The business of distributing fuel, food and animal feeds may not be glamorous. But it has other things going for it. As the old saying goes, where there’s muck, there’s brass.

Demand is high and likely to be resilient over the long term. Customer relationships and depot location convenience can give a company pricing power in what initially looks like a commoditised market.

Take NWF Group (LSE: NWF) as an example. The business has been profitable in recent years and last year revenues topped a billion pounds. Yet the market capitalisation of the stock is under £90m.

One reason for that is that this is a high revenue, low profit margin industry. Those 10-figure revenues last year generated £15m in profits after tax, equating to a paper thin net profit margin of 1.4%.

Rising fuel or other costs could eat into such thin margins. Lower demand for domestic heating oils helped push first half profits before tax down 36% year on year.

Despite that, the business has maintained its underlying full-year expectations. The share trades on a price-to-earnings ratio of 6 and offers a dividend yield of 4.4%.

If I had spare cash to invest, I would be happy to tuck a few NWF shares into my portfolio. It is a third cheaper than it was a year ago and I remain upbeat about the business prospects here.

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.

C Ruane has positions in Topps Tiles Plc. 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.

More on Investing Articles

Investing Articles

This UK share has hiked dividends for 32 years – now its price has crashed 30%

Harvey Jones is tempted by a FTSE 100 stock with a stellar track record of dividend hikes. But he wonders…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Should I rush to buy CrowdStrike shares after a 23% fall?

Edward Sheldon has been looking for cybersecurity shares to buy for his portfolio. Should he pile into CrowdStrike after its…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

After crashing 50% and 41%, are these FTSE growth stocks now unmissable bargains?

Paul Summers looks at two FTSE growth stocks currently hated by the market. Might this be a wonderful contrarian opportunity?

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Is this 7%-yielding FTSE 100 dividend star still a bargain after a 34% price rise?

Despite its recent price rise, this FTSE 100 high-yield heavyweight still looks very undervalued to me, supported by strong earnings…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Should I invest today or wait for a stock market crash?

Does it make sense to keep buying shares or save cash for a stock market crash? Our writer thinks there's…

Read more »

Investing Articles

Is this the beginning of the end for the rising Nvidia share price?

Jon Smith explains why the Nvidia share price dropped sharply last week and talks through the key events coming up…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£11,000 of Legal & General shares could make me £14,583 a year in passive income!

A high passive income can be generated from a much smaller investment in Legal & General shares if the dividends…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

2 of the widest moats in the FTSE 100

A durable competitive advantage is key to a good investment. And Stephen Wright thinks a couple of FTSE 100 firms…

Read more »