It’s a good idea to take a bit more care before taking the plunge buying penny stocks. They can often be frightful stocks to own for those who worry about share price volatility.
A great many low-cost stocks like these can also be considered less financially robust than larger-cap companies. This can significantly limit profits growth and even threaten a firm’s existence if trading conditions suddenly worsen.
However, these characteristics don’t apply to all penny stocks. But as a long-term investor, the prospect of temporary share price choppiness isn’t enough to put me off. Some quick research will allow me to avoid shares with weak balance sheets as well.
Here are three dirt-cheap penny stocks with big dividends I’m considering buying today.
Looking good
Lookers’ profit forecasts in 2022 could take a significant whack if chip shortages continue to damage new car production. But from a long-term perspective, I think the car dealership has a lot going for it. Worsening fears over the climate emergency means sales of electric vehicles (EVs) looks set for strong and sustained growth.
Don’t forget too that the government is set to phase out sales of new petrol and diesel cars in 2030. This could exacerbate interest in EVs towards the end of the decade. Today, Lookers trades on a forward P/E ratio of 7 times and boasts a chunky 4.2% dividend yield.
Topp of the world
Topps Tiles meanwhile deals on a bargain-basement P/E ratio of 10.8 times for this financial year. It carries a 4.8% dividend yield as well. I’d buy it because the British housing market should remain strong and so will wall and flooring product demand from homebuilders. Moreover, I’m tipping sales to keep rising amid a healthy repair, maintenance and improvement (RMI) market.
Topps Tiles’ latest financials showed sales up 1% in the 13 weeks to 1 January. This was despite the blockbuster comparatives a year earlier. Revenues were also up a mammoth 21% from the same 2019 period. I’d buy this penny stock even though runaway inflation could hit consumer confidence hard and, by extension, tile sales.
5.6% dividend yields
Speaking of inflation, I believe grabbing a slice of the gold market’s a good idea as costs soar. I’d do this by buying a UK bullion-producing stock rather than the metal (or a metal-backed financial instrument) as this way I can receive dividends while riding an increasing commodity price. Pan African Resources and its 5.6% dividend yield have caught my attention today.
There’s no guarantee that gold prices will rise, of course. Central bank interest rate hikes and a related rise in the US dollar could put paid to that. But the rate at which global inflation is booming — and importantly well beyond many broker forecasts too — suggests that profits at gold diggers like Pan African Resources could surprise to the upside. This penny stock trades on a forward P/E ratio of 5.5 times today.
Royston Wild 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.
