Although there are many well-established, large companies listed in the UK’s leading index, there are just as many smaller companies outside of the Footsie that pay above-average dividend yields.

Dividend-paying UK shares

For instance, PayPoint (LSE:PAY) is listed on the FTSE SmallCap index and it yields over 6%. That sounds pretty good, but it’s never just about the dividend yield to me. I’d want to see multiple reasons to invest before I’m ready to push the button. Does it have what it takes? Let’s take a look.

This technology services business runs payment terminals across a large network of convenience stores. It enables millions of consumers to make and receive payments. In addition, its e-commerce services allow customers to conveniently pick up and drop off parcels.

The trend to shop locally should continue, in my opinion. That should support footfall in shops and possibly drive more customers to use PayPoint’s services.

There’s one thing to consider though. As more bill payments move online, this part of the business could decline, which is a risk. But I believe such a decline could be offset by growth in the parcel business.

Should I buy?

PayPoint’s above-average dividend yield is supported by strong cash flow and a sound balance sheet. I also like that it has an 18-year history of distributing dividends to shareholders.

I have to bear in mind that its share price performance has been lacklustre over several years. And I’d by no means call it a growth stock. That said, it looks relatively stable. Despite many shares taking a tumble, Paypoint has managed a 3% gain over the past year.

With a price-to-earnings ratio of just 10, this share looks cheap to me. And all things considered, I’d buy it for my Stocks and Shares ISA.

A high-quality business

Another small company with a 6% dividend yield is Jarvis Securities (LSE:JIM). With a market capitalisation of just £98m, this online stockbroker is relatively small. But it has several qualities that stand out to me.

For instance, it’s a growing, high-quality and high-margin business. It recently announced a set of record-breaking results, for a third year running. Profits rose by 12% in 2021, and the profit margin was high at over 50%.

Jarvis is cash-generative and is good at distributing profits to shareholders in the form of dividends. Like PayPoint, it holds a double-digit record of consecutive dividend payments. That’s exactly the kind of reliability I look for in the best dividend shares.

Skin in the game

When looking for suitable investments, I often look at whether senior management team members own shares in the business. Jarvis certainly stands out here. The CEO and his family own more than 50% of the shares. I consider that to be remarkable ‘skin in the game’.

But I need to be aware that as the stock market takes a tumble in the near term, Jarvis could potentially see fewer transactions than last year. That said, it’s a diversified business with ample experience to manage through testing times.

Overall, I’d happily buy these shares for my own long-term portfolio.

• Many growth shares have suffered double-digit declines making them look relatively cheap.
• The convenience store market size is £44.3bn, which one rising FinTech stock is capitalising on.
• The surging demand for battery metals is sending cobalt prices through the roof, leading to record-breaking revenue for a UK mining business.

It’s a time of increased volatility in the stock market. While the FTSE 100 has delivered relatively strong results in recent months, not all stocks have been blessed with the privilege. But in my experience, volatility breeds opportunity. And with that in mind, let’s explore two UK shares I think are looking rather cheap.

A rising FinTech star

One stock that’s had a bit of a rocky journey in recent months is PayPoint (LSE:PAY). The business is a payments and e-commerce solutions provider for convenience store owners. Historically, the group has been highly dependent on cash transactions, which proved problematic when the pandemic struck, and everyone turned to contactless payments.

But PayPoint has now changed tactics, making several acquisitions to reposition the business to become a new leader in digital payments. And looking at the latest results, it seems this new strategy is working. In its third quarter of 2022, ended in December, total revenue came in 21.3% higher than a year ago, putting an end to its long record of stagnant growth.

Acquisitions obviously have their risks. If a target company fails to deliver on expected performance, or complications arise when integrating operations, it can end up destroying shareholder value rather than creating it.

Nevertheless, I remain cautiously optimistic. And with a PE ratio of around 20 versus the £44.3bn market opportunity, the UK share is looking relatively cheap to me.

A cheap UK mining share focusing on battery metals

Inflation may be wreaking havoc on most businesses. But for the mining sector, rising commodity prices are helping to significantly expand profit margins. And the increasing price effect is only amplified for metals related to electric vehicles and renewable energy technology, thanks to surging demand.

This is lovely news for Anglo Pacific Group (LSE:APF). The royalties company has historically been dependent on the sale of thermal coal to drive its bottom line. But over the years, management has begun diversifying the portfolio toward battery metals. Its recent $205m (£152m) acquisition of a cobalt mine royalty is proof of that.

And, so far, this strategy is paying off. Because when looking at the latest quarterly results, portfolio revenue climbed 74% to a record-breaking $23.6m (£17.5m). A lot of this growth can be attributable to price inflation, due to supply chain disruptions. And therefore there is a risk of prices falling again once these disruptions are resolved.

But with demand for battery metals unlikely to disappear any time soon, I think Anglo Pacific could be in for a good run. And with shares still trading below pre-pandemic levels, despite its superior financial position, I believe UK stock is looking rather cheap.

A UK stock to buy with enormous hidden value?

PayPoint hasn’t exactly been much of a growth stock over the years. In fact, before the pandemic, its share price pretty much hovered around 900p for over five years, with revenue growth stagnating. As a quick reminder, this company provides payment solutions for convenience store owners. So far, this doesn’t sound like much of a growth stock. But is that all about to change?

Over the last two years, management has been rigorously modernising its strategy. The vast majority of its merchant customers are now using its PayPoint One EPoS terminal. This is essentially a glorified checkout system. But it comes equipped with a cloud platform that provides automatic inventory management, a data analysis suite, and direct access to wholesaler price lists to generate and place orders instantly.

Meanwhile, its operations in the cash-first economy of Romania have been disposed of. PayPoint then used the proceeds to make a series of bolt-on acquisitions to improve its existing technology and market reach. For example, the addition of RSM 2000 introduced mobile payment support, while the Handepay acquisition added 30,000 additional merchants into PayPoint’s ecosystem.

Looking at its latest results, its PayPoint One division saw sales surge by 58.5% versus a year ago, pushing total revenue up by 21.3%. Given its pre-disposal average growth rate was basically flat, this is quite a promising sight for the UK stock and its shareholders.

Taking a step back

As encouraging as PayPoint’s performance has been of late, there are some risks to consider. The company operates in a strict regulatory environment. And recently, it ran into a bit of trouble surrounding its relationships with gas & electric companies. Utility firms can use PayPoint’s network of merchants to allow customers to pay bills using cash. However, Ofgem filed an objection against the firm as exclusivity clauses in its contracts were deemed anti-competitive.

Management has since resolved the situation by removing the exclusivity requirements from utility companies and voluntarily paid £12.5m. However, future regulatory intervention will remain a risk for shareholders. And while this particular scenario was dealt with quickly, other situations could be a lot more disruptive and potentially damaging to the business and its reputation.

The bottom line?

So, can PayPoint double my investment? I believe this rests on whether or not management’s new strategy will be successful. At this stage, it’s too early to tell, but the initial performance seen in the last year is encouraging to me. Personally, I remain cautiously optimistic about the future growth prospects of this UK stock. And therefore, I am considering increasing my existing position in this business.

A rising financial payments company

PayPoint provides payment processing solutions to merchants across the UK. Store owners can accept both cash and card payments from customers using its terminals. All transactions are recorded and uploaded to a cloud platform that enables merchants to better manage inventories and analyse crucial sales data.

Beyond this core offering, the group also has a vast network of ATMs and a popular delivery drop-off service. So, what’s been going on with its share price?

As the revenue is generated by charging small transaction fees on each sale, the pandemic has proven to be quite disastrous for its income stream. The retail sector saw a drastic drop in footfall during the height of the pandemic, which has yet to fully recover. As such, the shares of the UK payment processor fell drastically at the start of 2020 and have yet to return to pre-pandemic levels.

Can the share price of this UK stock make a comeback?

Despite what the share price indicates, 2021 has been quite a transformative year for this UK business. For a long time, there has been growing concern surrounding the group’s over-reliance on processing cash transactions. With many consumers opting to use contactless payments courtesy of the pandemic, the fall in cash payment volumes has impacted PayPoint’s bottom line.

But with the rising popularity of digital payment solutions, management has begun modernising operations and moving away from cash transactions. It started by selling off its Romanian business in April for a £30m profit. Using the proceeds, the company went on a mini-shopping spree and acquired RSM 2000 for £5.9m. The goal is to incorporate its mobile payment technology into PayPoint’s POS devices.

With its legacy products slowly being phased out and the retail environment improving, revenue for the first half of its 2021 fiscal year came in 15.6% higher than a year ago. And thanks to improving margins, pre-tax profits rose by 30%, excluding the proceeds from its Romanian disposal.

Time to buy?

As with any investment, there are always risks to consider. PayPoint is by no means the only company operating in this space. And its years of over-reliance on cash transaction has placed it somewhat behind the competition. Management has begun rectifying this problem. But whether the new strategy is enough to get the company back to pre-pandemic levels, only time will tell.

Personally, I’m optimistic. The recent actions taken seem to be prudent. Seeing a renewed focus on digital payment solutions, as well as increased interest in the e-commerce space, makes me believe these UK shares still have plenty of long-term growth potential. Combining this with a recently increased 5% dividend yield makes me tempted to buy more PayPoint shares today.

Overlooked tech share?

The first on my list is the payment group PayPoint (LSE: PAY). I think this is an overlooked UK tech champion. The organisation offers installed payment services for customers and retailers, such as card machines. It also provides services for consumers who want to pay bills using cash or credit cards. 

I think the business fulfils an essential part of the e-commerce and digital payments infrastructure, bridging the gap between digital payments and brick-and-mortar retailers. 

However, unlike other companies in the sector, shares in the firm seem to be relatively ignored. They are trading at a forward price-to-earnings (P/E) multiple of just 12.3. On top of this, the stock offers a dividend yield of 5.8%. 

Based on this valuation, and for the reasons outlined above, I would buy PayPoint for my portfolio of UK shares. Key risks the company may face going forward include competition and regulatory factors, which could impact growth. 

Top shares to buy now

Another dirt-cheap UK share, which is a leader in its respective market, is the financial services group Plus500 (LSE: PLUS). In the past, I have avoided this company because of its complex business model. I did not really understand how the group made money and if profitability was sustainable. 

Over the past couple of years, I have got to know Plus a little better, and it has consistently proven itself to the market. Net profit has risen threefold since 2015, and the company is highly cash generative. Its balance sheet has a net cash balance of $714m, and the stock yields 5.7%. Management has also been returning cash with share repurchases. 

Considering these qualities, I would take advantage of the recent slump in the shares and buy the stock while it is trading at a discount P/E of 5.7. 

Although I will be keeping an eye on growth headwinds, the most important is competition. Plenty of companies in the financial services sector are looking to grab market share. 

Recovery play

As well as the two stocks above, I would also buy Reach (LSE: RCH) as a cheap recovery play. The regional and national news publisher has been struggling to turn itself around in the face of falling newspaper advertising revenues over the past five years. 

However, last year was somewhat of an inflexion year for the organisation, as digital revenues surged. Increasing visibility of its websites means the group is now back on a more stable growth footing and, more importantly, it has eliminated borrowings from its balance sheet. 

Management now has plenty of headroom to invest for growth and, in 2020, the corporation restored its dividend for the first time since the financial crisis. 

Today, the stock yields 2.7%. It is also trading at a forward P/E ratio of 7.2. Considering these figures and Reach’s newfound balance sheet strength, I am excited about the company’s outlook. 

That said, I will be keeping an eye on its progress. While the turnaround seems to be producing results, there will always be the risk that the firm will return to its old ways.

A hangover from Covid-19 lockdowns, a soft pricing environment, and weak car sales owing to supply chain issues have all caused trading to disappoint. It’s possible that some or all of these problems will continue to hamper the dividend stock into 2022 too.

However, as a long-term investor, I’m extremely tempted to buy Sabre shares at current prices. This is primarily because the insurer carries a mighty 6.7% dividend yield for 2022. It’s also because there’s a chance Sabre may have touched rock bottom. And that means premiums may start rising again from next year. It recently commented that “further tentative signs that market prices may be starting to correct.”

I’m also encouraged by Sabre’s potentially-lucrative entry into the motorcycle segment this month. It’s signed a deal to become exclusive underwriter for MCE Insurance, one of the biggest bike insurance distributors in the business.

Going green

The not-so-snappily-titled Triple Point Energy Efficiency Infrastructure Company (LSE: TEEC) is another dividend stock I’m considering buying. And it’s not just because its yield sits at a decent 5.3% for the fiscal year to March 2022. Renewable energy stocks like this could prove to be shrewd assets to own as demand for low-carbon electricity shoots through the roof.

TEEC invests in a broad range of ‘green’ energy projects to help the government hit its net zero target by 2050. Its most recent bit of business in September saw it snap up a portfolio of hydroelectric power projects in Scotland.

Its best-known investment to date is in combined heat and power (or CHP+) assets on the Isle of Wight which supply heat, electricity and carbon dioxide to APS Salads, the UK’s largest producer of tomatoes.

Now TEEC isn’t one of the biggest renewable energy stocks out there. But it has a packed acquisition pipeline that could help it generate big shareholder returns in the future. I’m thinking about buying it even though, like any acquisition-focussed entity, it faces the constant danger of overpaying for an asset.

A brilliant dip buy

The PayPoint (LSE: PAYP) share price has fallen significantly in recent weeks. And as a bargain lover this has set my antenna quivering. The retail technology giant now trades on a P/E ratio of 12 times for the fiscal year to March 2022. Furthermore, its dividend yield has jumped to a mighty 5.8%.

PayPoint makes terminals which allow retailers to execute transactions, receive parcels and take bill payments from customers, and benefit from EPOS functionality. Its technology is cutting edge and demand for its PayPoint One terminals continues to steadily climb. It installed an extra 324 machines during the three months to June.

A high-profile failure of its systems could prove devastating for PayPoint’s profits. But although a past lack of such problems isn’t necessarily a reliable indicator for the future, I’m reassured by the company’s record on this front.

Georgia is a fast-growing Eurasian economy that expanded at an average of 5% between 2005 and 2019, according to the World Bank. There have been huge regulatory changes in recent years to reinforce and improve the quality and stability of the banking industry.

This all bodes well for Bank of Georgia, a cyclical UK share that is already enjoying improving economic conditions following the pandemic. Operating income soared 10.6% year-on-year in the first three months of 2021, latest financials showed. I’d buy the bank in August for the economic recovery, even if the rise of green energy poses a risk to Georgia’s oil-dependent economy.

Tech titan

In a recent article I explained how PayPoint’s (LSE: PAY) high-tech till systems make it a top dividend share for me to buy this decade. In recent hours I’ve seen retail data supporting my bullish take.

IGD predicts the convenience retail channel will grow 12.5% in the five years to 2026, to £50m. It said that “a continued focus on neighbourhood locations underpinned by the higher levels of working from home and suburban living will boost the convenience channel.” This bodes well for PayPoint. Its terminals offer a range of services like EPoS, card payments and parcel dispatch that allow convenience stores to do business in an increasingly technical retail environment.

IGD’s predictions that e-commerce will expand 21.4% between 2021 and 2026 also look good for PayPoint. It means that the number of parcels being scanned with its terminals is likely to grow through this period. I think the firm is a top buy despite the catastrophic damage that a technical failure of PayPoint’s systems would do to retailers’ operations, and by extension to its reputation.

A top UK IT share

The threat of being hacked has always been a problem for internet users. But staggering statistics from the FBI illustrate the level at which the threat of cybercrime has rocketed following the Covid-19 outbreak. It shows that the total cost of cyber attacks soared to $4.2bn in 2020, up a staggering $700m year-on-year.

The problem is only likely to get worse as society becomes more internet-dependent, people work from home in greater numbers and more regularly, and online shopping continues to grow. I think this makes UK shares like NCC Group (LSE: NCC) some of the best tech stocks for me to buy. This particular company helps businesses identify weaknesses in their IT defences and helps them fight cyber attacks when they emerge.

As an investor, though, I’m aware that NCC faces immense competition that could damage the returns I eventually make. In particular US cybersecurity giants like Microsoft and McAfee have the spending power that could suffocate smaller operators like this.

A FTSE 100 defence stock

The first stock I have chosen is one that I already own, BAE Systems (LSE: BA). At the end of July, this defence specialist released a very promising trading update. In fact, for the first half of 2021, underlying EBIT rose over 20% from the year before to over £1bn. The company also saw strong cash generation, with £461m of free cash flow.

Its excellent performance also enabled the company to increase shareholder returns. The interim dividend was raised by 5% to 9.9p. Furthermore, it announced a £500m share buyback programme. This suggests to me that the BAE share price may still be too cheap and has upside potential. As such, I may add more of this UK share to my portfolio.

One risk that must be considered is the fact that its net debt has risen slightly to nearly £2.8bn. Although this is currently not a problem due to the company’s strong cash generation, I still feel it is slightly high, and needs to be reduced in the near future. This may slightly limit the amount that could be returned to shareholders.

A UK share with recovery potential

Whitbread (LSE: WTB) struggled during 2020, and its share price is still 25% lower than its pre-pandemic level. It is not hard to see why. In its 2020 results report, the Premier Inn owner said it made an operating loss of £839m. Revenues were also over 70% lower than the year before at £590m.

Even so, I feel that this FTSE 100 stock can recover. From June, 98% of its hotels have reopened and it has seen “very strong forward booking trends”. This makes me think that Whitbread can start to return to normality.

I also see opportunities for the company to expand, due to a strong balance sheet that includes over £1.2bn of cash and an undrawn revolving credit facility of £950m. As such, I believe that Whitbread has the potential to further increase its market share over the next few years, especially due to the struggles faced by others in the industry.

A dividend stock

PayPoint (LSE: PAY) is the final UK share that I am tempted to buy in August. The company is mainly a bill-paying specialist that operates in the UK and Ireland. But it also has its own delivery service, the popular Collect+. Although the pandemic did lead to slightly lower profits in 2020, there were still many positives to take away. For example, the company announced that it was increasing the dividend by 6.4%, meaning that it currently yields 5.6%. This is a major sign of confidence in the future of the business.

The firm has also made some recent acquisitions — Handepay and Merchant Rentals. It is hoped that this will increase the company’s card payments capabilities and broaden the customer base.

As such, although this is a highly competitive sector, I feel that PayPoint is in a strong position. This is the reason I would buy today.

A FTSE 100 income hero

It’s perhaps unsurprising that investor confidence in UK share markets remains weak. The FTSE 100 has dropped back below the 7,000-point marker again as fears over the Covid-19 crisis and rising inflation have rattled nerves.

But I don’t plan to pull up the drawbridge. Indeed, SSE (LSE: SSE) is a top FTSE 100 share I’d buy, despite the uncertain economic outlook and the threat to future profits from regulators.

Firstly, investors can take confidence in the fact that demand for its electricity will remain broadly stable, whatever happens. Secondly, its decision to focus on the fast-growing renewable energy arena will allow it to exploit soaring demand for low-carbon power.

And thirdly, SSE remains on course to divest around £2bn of assets to shore up its balance sheet and thus continue paying above-average dividends. City analysts are expecting the annual dividend to grow again in the 12 months to March 2022. Consequently, SSE sports a gigantic 5.5% forward dividend yield.

Another top UK dividend share

I think Vistry Group (LSE: VTY) is also one of the best dividend stocks to buy now. Today, this FTSE 250 firm boasts a big 4.2% yield for 2021. News flow from the housing industry continues to get better and better as buyer demand outstrips the supply of ‘for sale’ properties.

This week, estate agency Savills upgraded its house price growth forecasts to 9% for 2021. This is more than double the 4% it had previously predicted. And it reckons property values will keep striding higher, resulting in total growth of 20.5% between 2022 and 2025.

However, robust Bank of England interest rate hikes could put these estimates under pressure. But I think Vistry’s low valuation (it trades on a forward price-to-earnings (P/E) ratio of 10) reflects this risk. It’s worth mentioning that the UK housebuilding share’s average weekly private sales rate clocked in at 0.76 in the first six months of 2021. This is up 10% from pre-pandemic levels.

The payments powerhouse

I’m also excited about PayPoint’s (LSE: PAY) profits outlook as it steadily rolls out its Paypoint One retail terminals. The technology has proved to be a winner in improving footfall and, consequently, revenues at convenience stores (they allow customers to pay for goods, settle bills, send parcels and transfer money). So PayPoint One is now live in 18,100 stores, having risen by another 324 in the three months to June.

This isn’t the only reason I like this particular UK share. I’m confident the recent acquisition of card payment and terminal businesses Handepay and Merchant Terminals will pay off handsomely in an increasingly-cashless society too. Today, PayPoint boasts a mighty 6.5% forward dividend yield.

I think the UK share is an attractive income stock to buy despite the threat posed by larger tech rivals in the payments arena.

I’m aware that dividend income is never guaranteed. Investors may not always get back as much as they invest when buying stocks and shares. As such, buying dividend stocks may not be suitable for all. Nevertheless, I’m comfortable with the level of risk involved. That’s why I would buy the two UK dividend stocks below for my portfolio today. 

UK dividend stocks on offer

The first company I would buy, with a dividend yield of 6.7%, is PayPoint (LSE: PAY). I think this is an overlooked electronic payments champion in the UK.

The company provides point-of-payment services and other facilities that let consumers pay for services, such as utilities, electronically. It provides a vital bridge between those in the economy who have digital skills and those who don’t. 

The business is highly profitable. Last year it reported an operating profit margin of 27%. This provides plenty of cash to facilitate the dividend to investors.

At the time of writing, the stock is trading at a forward price-to-earnings (P/E) multiple of 11.4. Analysts at Canaccord Genuity have a price target on it of 800p to 825p. 

The company faces some challenges as well. The digital sector is highly competitive, and it may be only a matter of time before a competitor comes to steal PayPoint’s lunch. Larger competitors such as PayPal have deeper pockets and more substantial brand recognition. 

Still, despite these risks, I would buy the stock for my portfolio of UK dividend stocks today, considering its market-beating dividend yield and valuation. 

Beating expectations

At the end of April, meat casings manufacturer Devro (LSE: DVO) announced that its sales had increased 4.6% in the first quarter of 2021. That followed a relatively robust 2020, despite the pandemic. 

Overall, analysts believe the group will report a modest decline in earnings this year. However, these are just projections at this stage. Based on the company’s first-quarter performance, it could be on track to outperform the City’s target. 

The City has also pencilled in a dividend yield of 4.4% for the year ahead. Once again, this is just a forecast, and there’s no guarantee the company will hit this target. The group has already warned that another wave of coronavirus could cause it to report a substantial decline in sales and profits for the year. This is the most considerable risk the business faces right now.

Despite this, I would buy the company for my portfolio of UK dividend stocks. The dividend yield of 4.4% looks attractive, and the firm is trading at a forward P/E of 12.6, which is not too demanding in my eyes.