With the hopefully long, hot days of summer upon us, I have been thinking about how to earn money without having to work harder for it. One approach I like is owning dividend shares. At the moment, some of them look like good value to me. Here are a couple of cheap dividend-paying shares I would consider buying for my portfolio in July.
Big Yellow
The self-storage operator Big Yellow (LSE: BYG) is among the cheap shares I would consider buying for my portfolio at the moment.
I like the profit potential of the self-storage business model. Indeed, I already own Big Yellow’s rival Safestore in my portfolio. Buying or renting a large building then subdividing it to lease is a proven business model. Many people or companies who put items into storage end up leaving them there for years, with the rent adding up. I also see reasons that demand could keep increasing, from the rising cost of homes to firms downsizing their offices.
Big Yellow has some advantages in this area. Its instantly recognisable brand helps the company attract new customers. The shares have a dividend yield of 3.2%, which is attractive to me. I particularly like the potential for capital growth. I think the industry is set to keep increasing its sales. As a leading player, Big Yellow should benefit from that. There are risks, though. Low barriers to entry in the industry could mean future profit margins are smaller than now.
Cheap shares in the self-storage sector
The price-to-earnings (P/E) ratio of less than four looks very cheap. P/E ratios are not the way all investors value property companies. Indeed, the company’s operating profit last year was more than quadruple its revenue. That reflects the way that the property sector accounts for earnings and changes in valuations.
But I do think the shares look cheap. Revenues, profits, and dividends have all risen over the past several years. I expect demand to stay strong and would consider adding the shares to my portfolio.
Barclays
The bank Barclays (LSE: BARC) needs little introduction. Its retail banking operations make it a household name. It also has a sizeable investment banking arm. In good times, that can be a massive profit driver. But I think it adds risks for the company. Investment banking can be heavily loss-making when the economy suddenly stops growing. I think that is a risk some investors are currently factoring into the Barclays share price.
However, the P/E ratio of less than five still looks cheap to me. Barclays made a post-tax profit of £7.2bn last year. This year has started strongly, with a pre-tax profit for the first quarter of £2.2bn. The bank thinks bad loans are set to stay relatively low for the coming quarters, partly because it has taken measures like reducing unsecured lending. Nonetheless, I think a worsening economic outlook adds risks for Barclays. For example, a weakening deal environment could hurt profits in its investment banking division.
But as a long-term investment, I like Barclays as a possible purchase for my portfolio. The current share price looks cheap to me. The bank’s strong brand, international presence, and deep experience could all help drive future profitability.