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‘Nearly’ penny stocks! 2 dividend-paying shares I’d buy

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A person holding onto a fan of twenty pound notes
A person holding onto a fan of twenty pound notes

I think these low-cost UK shares could help me make a heap of cash. Here’s why I believe these dividend-paying ‘nearly’ penny stocks are perfect for my portfolio right now.

A near-penny stock with HUGE dividends

There are a number of ways in which UK share investors can capitalise on the UK’s rapidly-growing elderly population. One way I’d do this is to buy XPS Pensions Group (LSE: XPS) which trades at 139p. The Office for National Statistics thinks one in four citizens will be aged 65 and above by 2050. That compares with one in five in 2019.

I expect XPS Pensions — the biggest pensions consultancy in Britain — to exploit this demographic opportunity to its fullest. I also like this particular company because of its commitment to expansion. In December, it agreed to acquire industry peer Michael J Fox for a fee of up to £3.75m.

I think XPS Pensions is an especially good buy because of its dividend prospects. Its defensive operations mean it should have the confidence and the financial clout to pay big dividends year after year. Indeed, its yield for the two financial years to March 2022 and 2023 sit at 4.8% and 5.2% respectively.

I’d buy the company even though its thirst for acquisitions could come back to bite it, for example if an asset throws up unexpected costs or delivers underwhelming revenues.

Building for growth

A worsening shortage of residential rental properties is encouraging me to invest in The PRS REIT (LSE: PRSR) too. Rents on family homes are booming as demand outstrips supply. In the last financial year (to June 2021) this UK share was able to increase rental rates on re-let properties by 6.2% and to existing tenants by 4%.

This massive market imbalance saw rents in the UK rise at their fastest rate since 2008 in the third quarter of last year, according to Zoopla. The property listings giant thinks tenant costs will continue rising strongly and has forecast average growth of 4.5% in 2022.

It’ll take a long time for this rapid uptrend to moderate, given the massive amount of residential properties required. And in the meantime, PRS is supercharging its own production plans to make the most of the opportunity.

In December, it acquired three of five targeted sites on which it plans to build 383 new units. The business recently hiked its portfolio target to 5,700 homes from 5,200 previously.

Now PRS doesn’t come cheap. At current prices of 106p, the property firm trades on a forward P/E ratio of 29.5 times. This sort of valuation could cause its share price to drop sharply if it encounters problems, for example if building material prices continue to soar.

However, I believe the bright market outlook makes this ‘almost’ penny stock worthy of a handsome premium like this. Besides, a meaty 3.8% dividend yield helps to take the edge off The PRS REIT’s elevated earnings multiple.

The post ‘Nearly’ penny stocks! 2 dividend-paying shares I’d buy appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2022

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