Penny stocks aren’t a traditional asset class for investors seeking a passive income.
These small-cap companies are often young companies with limited financial resources. What’s more, because they are at the beginning of their life cycle, they tend to reinvest any spare cash to boost growth. Dividends are a very distant consideration.
However, there are exceptions to this rule, a few of which are shown in the table below.
| Company | Forward dividend yield |
|---|---|
| HSS Hire Group (LSE:HSS) | 7.8% |
| Topps Tiles (LSE:TPT) | 7.2% |
| Anglo Asian Mining (LSE:AAZ) | 4.1% |
Of course, dividends are never, ever guaranteed. But if broker projections are correct, a £20,000 lump sum invested equally across these penny stocks would make me a £1,280 passive income this year alone.
There’s a good chance too that they could grow their dividends over time. Here’s why I think they’re worth a close look today.
HSS Hire Group
Construction companies across the globe are changing the way they operate. Rather than buying their own heavy equipment, many are choosing to rent instead in increasingly large numbers.
The advantages are numerous: the avoidance of large initial costs, no storage concerns or maintenance expenses, and better equipment tailoring for specific projects. It’s a trend that should benefit businesses like HSS going forwards.
This operator is expanding rapidly to capitalise on this trend as well. It opened 29 new builders’ merchants last year to take the total to 89. I think it could be a great buy despite current weakness in the UK economy.
Topps Tiles
Like HSS Group, building materials supplier Topps Tiles is also vulnerable to a subdued construction sector. It also faces significant competition from the likes of Kingfisher-owned B&Q and Travis Perkins.
But I still think earnings could surge given the bright outlook for UK homebuilding over the next decade. Britain needs to rev up residential construction to meet the needs of its growing population. Indeed, the Labour Party — favourites to win this week’s general election — has vowed to build 1.5m homes over the next five years.
This could support large and growing dividends from Topps Tiles for years to come.
Anglo Asian Mining
Copper miner Anglo Asian Mining hasn’t had the best of things more recently. Production has fallen sharply as it awaits regulatory approval for some of its operations. More specifically, it’s seeking the green light to raise a tailings dam wall.
The company isn’t out of the woods yet. But it received a positive environmental report from Azerbaijan’s government last month to carry out its work. Now could be the time to buy a stake in the company, then.
Copper miners like this have excellent long-term investment potential. Their product is used extensively in fast-growing sectors like renewable energy, computing, electric vehicles, and construction. And with supply shortages opening up, prices of the red metal are tipped by many industry experts to explode.
