Penny shares trade for under a pound – but on its own, that does not make them good value. Like any investment I consider for my portfolio, when looking at penny shares I focus on the long-term prospects of the business. Here are five UK penny shares with dividends I would consider adding to my portfolio now.
High street names
The banking giant Lloyds needs little introduction. As well as the bank of that name, it owns Bank of Scotland and Halifax. This concentration is the source of what I see as a great strength but also weakness – heavy exposure to the UK financial services market. When times are good economically, that is highly profitable for Lloyds. But if a recession comes, the lack of diversification could see profits tumble. In the long run I like the economics of the business and its large customer base. With a yield of 4.3%, I would consider adding more Lloyds to my portfolio.
Like Lloyds, another high street name that has restored its dividend but not yet to its pre-pandemic level is Photo-Me. Photo booths are proving more resilient than some critics expected. That said, the decline of photo booth usage remains a threat to future revenues. Fortunately, the company is capitalising on its vending machine expertise in other ways. It operates a host of machines, including children’s rides, juice makers, and self-service laundrettes.
Those machines are often positioned in prime spots like shopping centres. That is currently problematic in some Asian markets, where ongoing pandemic restrictions are hurting sales. But in the long-term, Photo-Me should continue to be highly cash generative. That is good news for dividends. The yield is 4.1%.
Long-term demand trends
I expect another couple of names on my list of UK penny shares to buy now for my portfolio to benefit from long-term customer demand.
One such company is healthcare property landlord Assura. While many commercial landlords are fretting about offices downsizing and retailers closing, I think the company’s focus on tenants like doctors’ surgeries and ambulance depots should mean that it sees resilient demand. That will hopefully be good for revenues. The company’s dividend yield is 4.4%. Assura has raised its dividend annually for some years, though dividends are never guaranteed.
I am also optimistic about the outlook for car dealership Lookers. In the long term, although vehicle types may change, I expect demand to remain high. At the end of 2020, there were 39m licensed vehicles in the UK.
Robust demand should be good for business at Lookers. Its prime sites and exclusive agreements with car makers give it a competitive advantage as the local dealership of choice in many areas. Lookers yields 3.0% and I think the dividend has room to grow with earnings. One risk I see is a shortage of stock due to supply chain problems.
I’d buy these UK shares with dividends
The fifth choice for my portfolio offers me exposure to much smaller companies, as it invests in dozens of them. The Income and Growth Venture Capital Trust dividend depends on the performance of its underlying investments, and they could do badly in a recession. For now, though, the shares yield 10% annually. I would be happy to add that dividend to my passive income streams.