If you are looking to make big returns on a small investment, you may want to learn more about penny stocks. But with thousands of penny stocks available in the market, it can be challenging to decide which stocks to invest in. That’s why we provide you with a comprehensive guide to the best dividend-paying penny stocks to help you make informed investment decisions. In this blog, we will explore the top dividend-paying penny stocks, their dividend history, factors to consider before investing, and the advantages and disadvantages of investing in penny stocks.
What are Penny Stocks?
Penny stocks are low-priced stocks that trade for less than a certain amount per share, usually less than Rs. 10 in India.
These stocks are often issued by small or newly-formed companies and are considered to be highly speculative due to their low market capitalization and limited liquidity.
Because of their low prices, penny stocks are often popular among individual investors looking for high-risk, high-reward investment opportunities. However, these stocks are also subject to high volatility.
When it comes to investing in stocks, investors are always looking for ways to maximize their returns. One way to do this is by investing in high dividend paying penny stocks. These stocks not only offer the potential for capital appreciation, but also provide regular dividends to investors. In this blog, we will explore the top dividend paying penny stocks and what factors to consider before investing in them.
Factors to Consider Before Investing in Penny Stocks with Dividend
Before investing in penny stocks with dividend, investors must consider several factors that can impact their investment returns. Some of these factors include:
Dividend history:
One of the critical factors that investors must consider before investing in penny stocks with dividend is the company’s dividend history. Investors should analyze the company’s past performance to determine if it has a consistent track record of paying dividends.
Net profit:
Another factor to consider is the company’s net profit. A company with a stable and growing net profit is more likely to sustain dividend payments than a company with erratic profits.
Equity shares:
The number of equity shares outstanding can also affect the dividend payout. The more equity shares a company has outstanding, the lower the dividend per share will be.
Stock market:
It’s important to analyze the stock market and its trends before investing in penny stocks with dividend. A volatile market can impact a company’s ability to pay dividends.
Stock Exchange:
Investors should also consider the stock exchange on which the penny stock is listed. Stocks listed on reputable stock exchanges are generally considered to be more reliable and trustworthy.
Industry Trends:
Investors should consider the trends in the industry in which the company operates. If the industry is growing, it is more likely that the company will also grow and continue to pay regular dividends. On the other hand, if the industry is declining, the company may struggle to maintain its dividend payments.
Debt-to-Equity Ratio:
Investors should also pay attention to the company’s debt-to-equity ratio. A company with a high debt-to-equity ratio may struggle to continue paying regular dividends, as it needs to use its profits to pay off its debts.
Management:
Investors should also consider the quality of the company’s management team. A strong and experienced management team is more likely to make sound financial decisions that benefit the company and its shareholders, including paying regular dividends.
Market Capitalization:
Investors should also look at the market capitalization of the company. Penny stocks with a small market capitalization may be riskier investments, as they are often more volatile and can be harder to sell if needed.
Overall Financial Health:
Finally, investors should consider the overall financial health of the company, including its revenue growth, profit margins, and cash flow. A company with strong financials is more likely to continue paying regular dividends and is generally considered a safer investment.
Top Dividend Paying Penny Stocks
Now, let’s take a look at some of the best dividend paying penny stocks in India:
Indian railway Finance Corporations:
For the year ending March 2022 it has declared an equity dividend of 14.00% amounting to Rs 1.4 per share.which results in a dividend yield of 5.24%.
NHPC LTD:
For last 12 months, it has declared an equity dividend amounting to Rs 1.90 per share. At the current share price of Rs 41.00, this results in a dividend yield of 4.63%.
Bank of Maharashtra:
It has declared equity dividend of 5% I.e, 0.5 per share at the current market price of 25 which results in a dividend yield of 2%. It has consistently declared dividends for the last 5 years.
Yes bank:
It has consistently paid dividend for last many years and last dividend paid was on year 2019.The revenue grew by 24.71% year on year basis since last quarter. In the quarter ending June 2019, ithas declared dividend of ₹2 translating a dividend yield of 31.44%.
Investment in Penny Stocks
Investing in penny stocks can be risky, and investors must be cautious before investing in them. Penny stocks are stocks that are trading at a lower price and have a small market capitalization. Although penny stocks can offer high returns, they are also associated with high risk.
Therefore, investors must consider various factors such as the company’s financial performance, management, industry trends, and market conditions before investing in penny stocks. It’s important to conduct thorough research and analysis before making any investment decisions.
Penny Stocks – Pros:
Low Cost of Entry:
One of the biggest benefits of investing in penny stocks is that they have a low cost of entry. This means that investors can buy a large number of shares for a relatively small amount of money. This makes penny stocks an attractive option for investors who have limited funds to invest or those who are just starting out in the stock market.
Potential for High Returns:
Another benefit of investing in penny stocks is that they have the potential to generate high returns. Since penny stocks are typically issued by small companies with high growth potential, they have a higher chance of experiencing significant gains in a short amount of time. Of course, this also means that they have a higher risk of losing value just as quickly.
Diversification:
Penny stocks can be a good way to diversify an investment portfolio. Since penny stocks are issued by small companies, they are often in different sectors or industries than larger, more established companies. This can help to spread out an investor’s risk and protect their portfolio from any downturns in a particular sector or industry.
Flexibility:
Penny stocks can offer investors a great deal of flexibility in terms of buying and selling. Since penny stocks are often traded on smaller exchanges, they can be bought and sold quickly, allowing investors to capitalize on short-term opportunities.
Active Involvement:
Investing in penny stocks can be a more active and engaging process for investors. Since penny stocks are issued by smaller companies, investors may have more opportunities to get involved with the company and have a say in its operations. This can be a rewarding experience for investors who are looking to have a more active role in their investments.
Opportunity to Support Small Businesses:
By investing in penny stocks, investors have the opportunity to support small businesses and start-ups. Many penny stocks are issued by companies that are just starting out, and investing in these stocks can help to provide these companies with the capital they need to grow and succeed.
Investing in penny stocks can be a good way to diversify an investment portfolio and potentially generate high returns. However, it’s important for investors to do their research and understand the risks involved before investing in any penny stock. It’s also important to have a clear investment strategy and to stick to that strategy in order to minimize risks and maximize returns.
Penny Stocks – Cons:
High Volatility:
Penny stocks are highly volatile and can fluctuate dramatically within a short period of time. They are usually traded in low volumes, making them susceptible to market manipulation and sudden price swings. This can make it difficult for investors to make informed investment decisions.
Lack of Information:
Information about penny stocks is often limited, making it difficult for investors to analyze them effectively. Due to their small size and low trading volumes, penny stocks are not usually covered by analysts, and financial data may not be easily accessible. This lack of information can make it difficult for investors to evaluate the potential risks and rewards of investing in these stocks.
Liquidity Issues:
Penny stocks are often illiquid, meaning there may not be enough buyers or sellers to execute trades. This can result in wider bid-ask spreads and larger trading commissions, which can eat into an investor’s returns. It can also be difficult for investors to exit a position in a penny stock if they need to do so quickly.
Fraud and Scams:
Due to the lack of regulation and oversight in the penny stock market, investors are at a higher risk of encountering fraud and scams. Penny stocks are often targeted by unscrupulous individuals who may manipulate the market to artificially inflate the price of a stock, then sell their shares for a quick profit. Investors should be cautious of unsolicited investment advice or recommendations and thoroughly research any company before investing in their stock.
Limited Trading Hours:
Penny stocks are often traded on over-the-counter (OTC) markets, which may have limited trading hours compared to major stock exchanges. This can make it difficult for investors to react quickly to changing market conditions or news events that could impact their investment.
Investing in penny stocks can be risky due to their high volatility, lack of information, liquidity issues, potential fraud, and limited trading hours. Investors should carefully evaluate the potential risks and rewards of investing in penny stocks and conduct thorough research before making any investment decisions. It is also recommended that investors diversify their portfolios and only allocate a small portion of their overall investment capital to penny stocks.
Conclusion
In conclusion, investing in high dividend paying penny stocks can be an excellent way for investors to earn regular income while also potentially earning capital appreciation. However, investors must be cautious and consider various factors before investing in penny stocks. By analyzing a company’s dividend history, net profit, equity shares, and market trends, investors can make informed investment decisions.
