Investing in penny shares can be an excellent way to target above-average returns. These small-cap stocks can experience greater share price volatility than larger companies. But the long-term gains can be significantly higher as their earnings take off.
Yet buying penny stocks doesn’t have to be just about growth. Right now, investors can also find top shares on the London Stock Exchange that carry enormous dividend yields and the chance for a sustainable passive income. These companies potentially carry even greater opportunities for share pickers to generate significant wealth.
Topps Tiles (LSE:TPT) is one I believe demands serious consideration right now. Want to know why?
An 11.5% income opportunity
It’s tipped to grow earnings by 28% this financial year (to September 2026), and to continue increasing them above 20% over the following two years. It reflects in large part the firm’s impressive transformation efforts (more on this later).
With these bright earnings forecasts come expectations that dividends will stomp higher too. So yields range from 8.6% to 11.5% over the next three years.
But do these forecasts seem too good to be true? There’s some risk here, given that dividend cover sits below the safety minimum of two times and below.
For the following three years, predicted dividends are only just covered by anticipated earnings:
- 1.3 times in fiscal 2026.
- 1.4 times the following year.
- 1.5 times in financial 2028.
The good news is the business remains financially robust, which could support those enormous dividends. Net debt was just £3.1m as of March. The result? Topps felt confident enough to raise the interim dividend 25% year on year, to 1p per share.
What’s the catch?
It’s important to say the threats to Topps Tiles have risen since the start of the Iran War. The interest rate cuts widely expected in 2026 are in tatters, which is worrying for the housing market. The company may also see demand fall elsewhere if cash-strapped consumers scale back their DIY plans.
But Topps’ successful Mission 365 transformation strategy could still help it thrive despite tough conditions. Why? By strengthening the firm’s digital operation, improving its critical trade channel and expanding its product ranges, it’s in better shape to grow its market share and improve margins.
It already seems to be having an effect, the retailer noting in May that
like-for-like revenue in the first seven weeks of the second half has returned to positive, up 0.6% which, encouragingly, is a step up versus Q2 2026 (down c. 2%).
A dirt-cheap penny stock
These self-help measures put Topps Tiles in far better shape to grow earnings as its end markets improve. And this excites me as a predominantly long-term investor. I’m especially excited by the sales opportunities it will enjoy as housebuilding activity accelerates (government targets suggest 300,000 new homes are needed each year).
I think Topps is a top stock to consider, and especially at current prices. Its forward price-to-earnings (P/E) ratio of just 7.8 times, making it one of the best-value penny shares out there. I’m considering adding it to my own portfolio next time I have cash to invest.
Should you invest £5,000 in Topps Tiles Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie 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 Topps Tiles Plc made the list?
Royston Wild does not hold any positions in the companies mentioned.
