2 cheap shares to buy now for dividends

Looking for cheap shares to buy now for his portfolio, our writer is considering two income-generating UK penny stocks.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

pensive bearded business man sitting on chair looking out of the window

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

What makes shares good value? I have been looking for cheap shares to buy now for my portfolio. I have identified a couple that I think have promising business prospects and trade at an attractive valuation. Both pay dividends.

Although the two shares are penny stocks, that is not why I see them as cheap. Instead, I like their long-term commercial outlook. I reckon their current share price could make them attractive and good value additions to my portfolio.

Photo-Me has vending expertise

The vending machine expert Photo-Me (LSE: PHTM) does a lot more than just operate photo booths. With a range of business lines stretching from children’s rides to fresh juice machines, Photo-Me has learnt how to profit from its experience of running all sorts of vending machines.

Should you invest £1,000 in Lookers Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lookers Plc made the list?

See the 6 stocks

That allows it to make attractive profits. From a spur-of-the-moment orange juice on a hot day to an urgently needed identification photo, the company’s customers tend to focus on satisfying an immediate need, not necessarily on how much it costs.

The pandemic hurt revenues and one risk I see is that ongoing lockdowns in Asian markets could continue to dampen revenues and profits. But the business is performing strongly overall and has brought back its dividend. I see its self-service laundry machines as a source of potential growth in coming years.

The shares currently yield 4% even with the dividend still far beneath its pre-pandemic level. The price-to-earnings ratio of 13 looks cheap to me given that I expect further earnings recovery this year. The stock trades for less than the chief executive recently offered in an unsuccessful takeover bid. I would consider these to be cheap shares to buy now for my portfolio.

More cheap shares

Another company that I think looks like good value for my portfolio right now is Lookers (LSE: LOOK). That may come as a surprise. After all, the Lookers share price is already up 24% this year. It has climbed 20% in 12 months.

But despite the share price rise, a price-to-earnings ratio of five looks like a bargain to me. Earnings per share came in at 15.7p last year. As Lookers sits among the ranks of UK penny shares, those earnings relative to the share price make me think it could be a cheap addition to my portfolio. Admittedly earnings were far stronger than the prior year, when the company had reported a loss. But that reflected an accounting scandal that I think has now been fully resolved.

Lookers looking ahead

2022 is ahead of 2021 so far on an underlying profit basis. The company said in its annual results last week that it is seeing robust consumer demand. There are still clouds on the horizon. For example, Lookers noted that inflation was a possible risk to its profitability. But for now at least, demand for vehicles from customers is high. Supply constraints mean profit margins are strong.

Like Photo-Me, Lookers restored its dividend recently and currently yields 3%. I reckon the company could increase its dividend in coming years, although that is not guaranteed. From both a growth and income perspective, I would consider adding Photo-Me to my portfolio now.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Christopher Ruane 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.

More on Investing Articles

A close up side view of a father and his young daughter who is a wheelchair user having a cute affectionate moment with each other whilst on a family day out in a beautiful public park in Newcastle upon Tyne in the North East of England.
Investing Articles

How much should a 40-year-old invest in an ISA to earn a monthly passive income of £1,000

Our writer crunches the numbers and considers how a long-term investor could grow a pot large enough to earn a…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

Here are 3 ways to think about Nvidia stock

Christopher Ruane weighs three different approaches to understanding the current Nvidia stock price as he looks for the right opportunity…

Read more »

Tŵr Mawr lighthouse (meaning "great tower" in Welsh), on Ynys Llanddwyn on Anglesey, Wales, marks the western entrance to the Menai Strait.
Investing Articles

Is the Diageo share price about to go gangbusters?

Harvey Jones thought he spotted the Diageo share price going cheap but jumped too soon. Could his bargain buy finally…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

The Ocado share price is up 48% in a month! Is this the start of a stellar recovery?

Harvey Jones says the Ocado share price is the ultimate binary play. The FTSE 250 stock could fly, or it…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing Articles

Growth, buybacks and dividends galore – are NatWest shares the ultimate no-brainer buy?

NatWest shares are flying again, as we saw in its expectation-thrashing results. Harvey Jones looks at whether the FTSE 100…

Read more »

Female Tesco employee holding produce crate
Investing Articles

Is a UK stock market correction coming?

Our writer’s increasingly concerned about the apparent disconnect between the performance of the UK stock market and that of the…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

The Rolls-Royce share price has soared 66% already this year! Can it really keep going?

Even after a stunning few years, the Rolls-Royce share price has soared by two-thirds already this year. Our writer revisits…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Spare £5k? Here’s how long it would take to generate a second income of £5k every year!

Christopher Ruane explains the maths behind building a second income from dividend shares, as well as some of the opportunities…

Read more »