A drinks giant

Diageo (LSE: DGE) has always been one of my favourite UK shares, with its reputation for excellence and significant brand loyalty. Indeed, Diageo owns over 200 different alcoholic brands, such as Guinness, Gordon’s, and Johnnie Walker. Due to the prominence of these brands, Diageo can rely on recurring sales, alongside some organic growth.

In fact, in the recent FY22 half-year results, Diageo managed to record net sales of £8bn, representing organic growth of around 20%. Organic operating profits were also to grow 24.7% to £2.7bn. Considering the worries surrounding cost inflation and supply chain constraints, these were incredibly strong results. It also allowed the company to increase the interim dividend by 5%, giving it a yield of around 2%.

There are some risks with the shares, however. For example, cost inflation is likely to increase capital expenditures, and this may strain profit margins. Supply chain constraints may also limit the company’s ability to meet demand for its products. Nonetheless, I remain confident in the future. Indeed, over the medium term, from FY23 to FY25, it expects organic operating profits to grow sustainably within a range of 6% to 9%. The company’s share buyback programme, where it plans to return £4.5bn to shareholders, is also likely to have positive effects on the Diageo share price. For these reasons, Diageo is a ‘no-brainer’ buy for me.

A lesser-known UK share

In contrast to Diageo, Pan African Resources (LSE: PAF) doesn’t receive much attention. Despite this, the gold miner is performing excellently. In fact, in the most recent full year trading update, it recorded profits after tax of $74.7m, which is a 69% increase from the year before. It also sports a dividend yield of over 5%, far higher than most other UK shares.

Things are also going extremely well in the latest half-year. In fact, the company managed to produce 108,000 ounces of gold in the six months ending December 2021, which is a record amount for the company. It also exceeded previous guidance of 105,000 ounces. Further, the company announced a further reduction in net debt, a factor which may allow further increases in the dividend.

Despite this, PAF is extremely reliant on the price of gold, which is entirely outside of its control. This is a risk that faces the company. But that’s not stopping me from buying. Due to the current inflation rates, I feel that gold has further to rise. As a top-class gold miner, PAF is, therefore, another UK share I’d buy with £1,000.

The post 2 ‘no-brainer’ UK shares to buy with £1,000 appeared first on The Motley Fool UK.

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Stuart Blair owns shares in Diageo and Pan African Resources. The Motley Fool UK has recommended Diageo. 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.

Trading update

Yesterday’s trading update was excellent, and although the stock rose around 4%, I think there’s plenty more to go. In fact, due to an increase in gold production, to over 200,000 ounces, the company saw record annual profits after tax of $74.7m. This is a 69% increase from last year.

In addition to the healthy profits that were generated, PAF was also able to reduce net senior debt by 46% to $33.7m. This means that the company has finished its financial year with a far healthier balance sheet. Accordingly, it should be able to increase how much money can be returned to shareholders.

And it’s doing just that. Due to the excellent results, the dividend has been raised by 28.5% to a record 0.916p per share. This equates to a dividend yield of 5.4% at the penny stock’s current share price. It is also comfortably covered by profits, which will allow the group to continue to invest in itself and reduce debt further.

In addition to the record dividend, the board has also approved a share buy-back programme, of which details will be announced soon. Over the past few years, PAF has not bought back its own shares, so the fact that it’s starting to do so now shows real optimism. It should hopefully have a positive effect on the PAF share price.

Other factors

One reason why PAF was so successful in the past year was due to the high price of gold. In fact, last year, the average price of gold received was $1,826 an ounce, compared to $1,574 the year before. This demonstrates the company’s reliance of the price of gold though, a factor which may hinder it in the future. Indeed, the price of gold has already fallen below $1,800, and many fear there is further to fall. This is the main risk with this penny stock.

Even so, other than the potential for the price of gold decreasing, there are currently no other signs that this was a one-off year. For the year ending June 2022, PAF remains committed to producing a minimum of 195,000 ounces of gold, and I believe that it will be able to exceed this. And it also hopes to increase shareholder returns further, a sign that the best is yet to come.

What’s next for this penny stock?

For now, I feel that short-term volatility will continue. But for the long term, I’m confident and this is the reason why I originally bought PAF. I also believe that the stock has been oversold in recent weeks. As such, it currently trades on a very low price-to-earnings ratio of 6. This illustrates that the share price is too low, and I’d have no hesitation in buying more shares.

The post A 5.4% dividend yield penny stock to buy now appeared first on The Motley Fool UK.

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• Meet the skyrocketing FTSE 250 stocks up by more than 300% in five years!

Stuart Blair owns shares in Pan African Resources. 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.