Financial advisors hate penny stocks… Fund managers barely ever invest in them.
But if there's one thing that these tiny shares have shown over the years it's that they've got huge upside potential.
In 2020 alone Red Hot Penny Shares reader have banked a 274% gain on Pan African Resources, 519% on DRD Gold and 111% on Quantum Food Holdings…
Most investors can only dream of these kind of gains.
The truth is buying penny stocks is scary.
And it's that fear that keeps financial advisors and many investors on the side-lines.
But when these penny stocks take off. Not only do they miss out on the perfect time to buy... they miss out on buying altogether.
Looking at the opportunity in this sector right now there's a huge opportunity brewing.
Why I like these three stocks in particular
Right now, many penny stocks are the cheapest they have been in a decade – and more.
What’s different from the 2008 financial crisis is most of these companies are still highly profitable. And in some cases – they’re still paying record dividends!
Big dividend payer #1 – Afrocentric Investment Corp
Afrocentric is an investment company with its largest investment in a medical aid administration company. It is actually a larger administrator of medical aids than Discovery Health – something most investors don’t even realise.
What’s more – the company’s profits are very resilient and have consistently shown growth in recent years.
But here’s the most attractive bit about the company…
It’s full year dividends for 2020 equal 34c. And its share price is currently 333c.
That means the company’s shares are selling at a dividend yield of 10.2% - which is nearly THREE TIMES the SA REPO RATE.
Considering earnings per share of 53.41cps – the company’s PE ratio currently sits at a paltry 6.23.
Big dividend payer #2 – Bowler Metcalf
Bowler is a plastics and packaging company.
It’s completely debt free and the company’s aggressively grown its dividend over the last three decades.
As you can see – it has steadily improved the dividends its paid to shareholders over the years.
But lately the company’s kicked it up a notch – it has now also started doing share buybacks.
In the past year it bought back around 7.4 million shares. That’s basically 10% of the company’s total shares in issue. And considering how strong its cashflows are, Bowler can buy back the same amount of shares this year as well as pay a dividend larger than 2020’s.
Based on management expectations it will pay a 46.50cps dividend for 2021 – equal to 5.81% on the current share price. If the company does share buybacks again this year, and sees slight growth in earnings – it could see very good bottom line growth.
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Big dividend payer #3 – Mpact
Mpact was the JSE’s largest packaging company – and it is currently 63% below its 2018 high.
Right now the share price is 1070c, with the company’s 2020 full year dividend coming in at 60c, that’s a yield of 5.6%.
If the company returns profitability to 2019 levels following the Covid pandemic – we’re looking at around 185cps profit. That would put it on a PE ratio of 5.78.
It would also mean the company could pay between 70c and 80c a share in dividends – increasing its dividend yield to a very attractive 7.47%.
The company’s net asset value currently sits at R21.62. If it only recovers to this level – there’s 102% upside from its current share price!
Take this little known logistics company for instance.
Its rolling 12 month dividend yield is equal to 9.47%, with a PE of only 4.66…
In its latest results the company grew interim profits by 11% through the lockdown period – and still paid a huge dividend.
Here’s to unleashing real value
Editor, Red Hot Penny Shares