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.

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Initiated at first-half results time that year, the goal was “to grow group sales to £365 million in the medium term, with 8-10% adjusted profit before tax margins.”

Two years on, how’s it going? With the 2026 interim report released Tuesday(19 May), we heard of “significant progress against Mission 365 and the priorities for the year that we laid out in December 2025.“

Solid first half

“We are making good progress in delivering our strategic agenda, including a programme of self-help measures weighted towards the second half, and we are accelerating growth in digital, trade and category extensions.”

— CEO Alex Jensen

On the face of it, performance in the half looked mixed. Year-on-year comparisons are a bit tricky, after the impact of the 2024 CTD Tiles acquisition was excluded from adjusted measures in 2025.

On headline figures, adjusted revenue rose 11.6% compared to the first half of 2025. But on proforma measures, with CTD added back into 2025 H1 results, we saw the following…

• Adjusted revenue = £142.6m (-0.2%)
• Adjusted operating profit = £6.1m (+17.3%)
• Adjusted profit before tax = £2.2m (no change)
• Interim dividend = 1p per share

That might not look like a storming comeback. But against a background of rising inflation and tightened spending, I rate it as a positive first half. In fact, the update told us “Topps Group has outperformed the RMI [Repair, Maintenance, and Improvement] market.” That’s measured against the Barclays UK Consumer Spend Report for Home Improvements & DIY.

What comes next?

Faced with “ongoing political unrest and weak consumer sentiment,” management didn’t give us specific revenue or profit guidance for the full year.

But the company says revenue should be biased towards the second half, with cash generation expected to benefit. And so far, the first seven weeks of the new half have seen like-for-like revenues increase 0.6%. That follows a 2% like-for-like decline in the second quarter.

All in all, the company has “confidence that it will deliver modest year-on-year profit growth in line with market expectations, assuming macro conditions and consumer confidence do not deteriorate further.“

Coincidentally, the International Monetary Fund has just upped its 2026 UK growth estimate to 1%, with cautions over Iran war fallout and “domestic uncertainty.” Fingers crossed.

What should we do?

I’m keeping a careful eye on the balance sheet, as net debt rose to £3.1m from £1.2m a year prior. But with a £30m banking facility, that doesn’t worry me too much at this stage.

And that dividend? There’s no word on full-year expectations, though policy is to pay a third of the previous year’s total at interim time. Forecasters have a yield of 8.5% on the cards.

There’s clearly still plenty to do — and no guarantee of success. But for penny stock watchers, I see potential here. I think Topps Tiles is definitely one to consider.

Alan Oscroft does not hold any positions in the companies mentioned.

The post Is this 34p penny stock set to storm back as turnaround makes progress? appeared first on The Twelfth Magpie.

Needless to say, it’s critical that investors do proper detailed research to separate the duds from the true investment opportunities. But there’s another important thing to consider: buying penny shares that are trading ‘on the cheap.’

Underpriced companies can avoid the price volatility that’s a common problem for small-cap companies. What’s more, a low valuation can stop a penny stock from plummeting if news on the company, industry, or the broader economy rattles investor nerves.

With this in mind, here are two dirt-cheap penny stocks I’m thinking about buying this month.

Getting back on Topp

The risks facing Topps Tiles (LSE:TPT) have risen since the start of the Iran war. Rising inflation and its potential effects on interest rates could prompt a fresh housing market downturn. It’s a combination that could also dent sales to cash-strapped DIY enthusiasts.

In this climate, demand for its tiles and other product lines might come under pressure. But is this baked into the firm’s low valuation? With a forward price-to-earnings (P/E) ratio of just 7.2 times, I think it could be.

The long-term potential at Topps Tiles is considerable in my view. Britain’s fast-growing population should lead to increased newbuild rates over the next decade. In addition, the UK’s existing housing stock is extremely old, which I’m expecting to support demand from the repair, maintenance, and improvement (RMI) sector.

Encouragingly, Topps is investing heavily in its digital capabilities and product ranges to capitalise on these opportunities.

Big dividends

Penny stocks aren’t renowned for their high dividend yields. Typically, these small-cap shares are growth-focused companies that plough any extra cash into their operations. Real estate investment trust Alternative Income REIT (LSE:AIRE) is one brilliant exception to this rule.

As its name suggests, it’s designed to deliver dividends to its shareholders. In exchange for tax breaks, REITs like this must distribute at least 90% of their rental earnings to shareholders each year.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

This doesn’t guarantee a healthy dividend each year, mind. What if Alternative Income struggles to collect rents, or its properties become empty? Fortunately the trust’s diversified portfolio helps reduce this danger. It has 20 properties on its books, ranging from care homes to power stations, and retail parks to gyms.

The REIT also has tenants locked down on long-term contracts. This gives it the strength and the confidence to pay market-beating dividends year after year. As of December, its weighted average unexpired lease term (WAULT) to expiry was a robust 17.1 years.

For this financial year (to June 2026), Alternative Income REIT sports an enormous 7.6% dividend yield. Its shares also trade at a 13% discount to the trust’s net asset value (NAV) per share. For value investors seeking top penny stocks, I think these numbers are hard to ignore.

The post 2 dirt-cheap penny stocks I’m considering in May! appeared first on The Twelfth Magpie.

Some people may simply look at a table listing current dividend yields and start from the highest ones. But that approach can be fraught with risk, for reasons I explain below.

Look at the source of dividends

One reason some shares offer a high yield is because their price has been marked down by the City in expectation of a possible dividend cut.

No dividend is ever guaranteed to last. Some cuts come out of the blue completely, or are announced as part of a wider raft of unexpected bad news.

But other shares offer plenty of clues that their dividends may be cut in future.

Things to look for include a debt-laden balance sheet, declining profitability in the core business, free cash flows below the cost of the dividend, and management reshaping a firm’s capital allocation policy.

One of those factors alone can be enough to trigger a dividend reduction or cancellation.

So I always look at the source of a company’s dividend payments. How is it making the money it needs to fund its dividend – and does that look likely to last?

Don’t ignore the share price

One common mistake is focusing just on yield, not on total return.

During the time you own a share, the dividends you earn contribute to your total return – but so does share price movement, whether positive or negative.

To illustrate, let’s take a look at B&M European Value Retail.

B&M’s yield is 7.6% — very high both for the FTSE 250 and for the retail sector.

But over the past five years, the B&M share price has fallen 69%. So a shareholder who bought five years ago and sells today would be in the red, despite the high yield.

Stick to businesses you can understand

Even when a business does not generate enough spare cash from its ordinary operations to sustain its dividend, it may keep paying it.

For example, it might sell part of its assets to raise cash, that can then fund a shareholder payout.

That is possible for an operating business to do. For an investment trust it can be particularly tempting, as the asset base is often a portfolio of highly liquid assets like publicly traded shares.

Such a move can bring rewards today, but at a long-term cost. With the complexity of accounting rules, such financial juggling may not always be obvious to the uninitiated.

That is why, like Warren Buffett, I aim to invest in businesses I understand.

Penny share Topps Tiles (LSE: TPT) has its problems, from a housing market that is weakening in some areas to supply chain disruption pushing up the price of imports. This month it described market conditions as “challenging”.  

The high yield – currently 7.8% — could be at risk. Topps has shown itself willing in recent years to cut its dividend when business results demand it.

But I like that disciplined approach to finances. I also feel comfortable investing in Topps – and have no plans to sell – because I feel I can understand its business.

Its large depot network and digital offering help it sell one in five tiles bought nationally. That gives it a strong basis for long-term financial success.

The post Want to build a high-yield share portfolio for dividend income? 3 things to watch appeared first on The Twelfth Magpie.

But it’s not always like this. With their lack of financial firepower, it doesn’t take much to blow a penny stock off course. Here’s one example that’s been in the doldrums of late. However, are things are about to turn? Let’s see.

Who?

Not so long ago, Topps Tiles (LSE:TPT) wasn’t a penny stock. As recently as December 2023, it had a market-cap in excess of £100m. Since then, the group’s struggled. The post-pandemic surge in home improvements didn’t last long and increased employment costs have hit its bottom line.

In 2024, it bought CTD Tiles out of administration, a business focusing on the commercial sector. It’s expected to return to profitability in 2026.

The group’s shares are now (24 April) changing hands for 45% less than they were in April 2021. But did the group’s most recent trading update provide evidence of a recovery?

Growing in a shrinking market

Excluding CTD Tiles, revenue was 2.1% higher during the 26 weeks to 28 March than for the same period a year earlier. Importantly, it beat the wider market, which was down around 2.5%.

But the group’s not exactly flying at the moment. The trading update contained the phrase “subdued customer sentiment”, which added to a sense that the business isn’t really going anywhere at the moment.

What do the experts think?

Despite this, analysts reckon the group’s shares are up to 58% undervalued. Admittedly, there are only three City professionals covering the stock. However, they have all set targets – 60p, 50p, and 40p respectively – that are above the group’s share price of 38p.

The analysts are clearly persuaded by the Topps Tiles investment case:

• Exposure to a target market of £2.1bn – it’s recently started selling wood and laminate floors, shower screens and splashbacks. Through its six brands, it sells to residential customers across all price points. It’s expanded into the trade market and sells directly to contractors, architects and designers.
• Strong balance sheet – it reported a net cash position of £7.4m at 27 September 2025.
• A complementary store network and internet business – the majority of web sales involve a trip to one of its 300+ physical stores. In addition, nearly all of the group’s in-store shoppers interact with its website.

Having successfully delivered its “1 in 5 by 2025” target (20% market share) ahead of schedule, it’s now adopted “Mission 365”. It’s aiming for revenue of £365m in “the medium term”. For context, sales during the year ended 30 September 2025 were £295m.

Am I missing something?

To be honest, I see Topps Tiles as more of an income share than a growth stock. It seeks to pay at least 67% of adjusted earnings per share in dividends each year. Over the past five years, it’s offered an attractive yield.

But as a reminder that dividends cannot be guaranteed, its payout’s been erratic. And to be honest, given it’s rather unexciting current performance, I wouldn’t rule out another cut soon.

On balance, I don’t feel Topps Tiles is the bargain that its yield — or its historically low share price — suggests. I believe there are many better opportunities to consider elsewhere.

The post Potentially 58% undervalued, is this a penny stock bargain? appeared first on The Twelfth Magpie.

Sadly, finding these winners early on is far easier said than done. After all, there are hundreds of very small penny shares to pick from. But luckily, institutional investors have already started narrowing down the list with their own research. And as of April 2026, there are three tiny stocks that have the potential to be big winners.

Let’s dive in.

3 top professional picks

The three small businesses that institutional analysts have flagged as potentially terrific buys in 2026 are Synthomer (LSE:SYNT), Topps Tiles (LSE:TPT), and Michelmersh Brick Holdings (LSE:MBH).

Each company is fairly unique, but they all target one end-market: construction.

Synthomer, in addition to other products, supplies specialist polymers used in external paints, architectural coatings, and waterproof membranes for roofs. Topps Tiles is the UK’s leading specialist wall and floor tile retailer, supplying both home renovators and home builders. While Michelmersh is trying to help solve the UK’s chronic shortage of clay bricks.

Each business supplies a different part of the construction sector’s value chain. As such, this basket of stocks appears well-positioned to capitalise on the structural tailwinds created by the government’s commitment to build 1.5m new homes without directly competing with each other.

If the share price forecasts are right, investors could be in for some impressive gains over the next 12 months, and possibly even bigger returns over the coming years.

Needless to say, a combined 51.4% potential gain by this time next year certainly suggests that these businesses might indeed be among the best stocks to buy now.

But what’s the catch?

The risks

Despite the government setting ambitious supportive homebuilding targets, the UK construction sector remains genuinely weak on the back of rising raw material and labour costs, made worse by a continuous unaffordable-housing crisis.

As a result, all three businesses are struggling to achieve meaningful revenue and profit growth, with the pressure only amplified for Synthomer and Topps Tiles, whose balance sheets carry heavy debt burdens.

This impact has only been made worse by the escalating geopolitical environment, with costs being driven even higher.

What does this all mean for investors?

The bottom line

While each company has a genuine path to success, external headwinds could nonetheless prevent them from achieving their full potential. And without deep coffers to help absorb the short-term impact, these penny stocks could see their share prices fall much further before a cyclical recovery emerges.

Personally, out of this basket, Michelmersh appears to be in the strongest position, leveraging superior aesthetics and durability to generate some pricing power in a highly commoditised brick market. In fact, that’s why the company now enjoys the biggest operating margins out of the three.

So, while I’m not 100% convinced that Michelmersh is among the best stocks to buy now, it certainly has enough potential to warrant closer inspection.

The post Experts say these are 3 top UK penny stocks to buy in an ISA right now appeared first on The Twelfth Magpie.

One example is Topps Tiles (LSE: TPT). Despite an eye-wateringly high return on equity (ROE) and a chunky 8.9% yield, it appears to be drowning in debt. Why?

Let’s take a look

On closer inspection, Topps Tiles may not be as profitable as first appears. But that’s not to say it isn’t performing well.

Latest full-year results show adjusted sales up 6.8% to £295.8m, profit before tax 46% ahead to £9.2m, and a proposed full-year dividend up 20.8% to 2.9p a share.

Plus, the market still values it cheaply, with a share price around 35p and a forward price-to-earnings (P/E) ratio just above 8. However, that cheap rating reflects a business tied to a soft UK home improvement market.

Why the ROE looks so high

When it comes to penny stocks, ROE can look unusually strong due to a small equity base. For Topps, this is the case due to years of lease-heavy retail operations, acquisitions, and IFRS 16 accounting practices.

Basically, it uses a lease model rather than ownship, and those lease liabilities make the balance sheet look more debt-heavy than a typical retailer.

The company also points out that its ‘adjusted net cash’ excludes lease liabilities, while statutory measures include them. This is critical, as the figures can look very different depending on which version you use.

Why the dividend stays high

With a capital-friendly policy, Topps’ shareholder base has come to appreciate the rising payout. Subsequently, it has kept the dividend moving higher even through rough patches. That means, at times, the dividend may lack strong cash coverage.

In 2025, operating cash flow was recorded as around £18m. But when you factor in maintenance and growth capex, lease repayments and acquisitions, it’s closer to £2.6m. With £3.9m of dividends paid, that’s a bit tight on a strict cash basis.

This is key for income investors. While a dividend may be supported by the business model and balance sheet, it’s not always covered comfortably by cash.

True borrowings matter

Debt’s where things can get tricky, especially for penny stocks. Topps had only £11m of bank borrowings at year-end, but lease liabilities were £99.8m. So most of its total debt’s really the cost of operating stores – not bank borrowing in the usual sense.

It also had a £30m loan facility and £7.4m of net cash before IFRS 16 lease liabilities, which suggests bank debt costs are manageable for now.

Still, that doesn’t make it risk free. Besides the volatility risks that small-caps face, weak consumer confidence and higher operating costs add pressure. If the housing and renovation market stays soft for longer than expected, that could threaten profits – and the dividend.

The bottom line

This example shows why taking headline numbers at face value can often be misleading, and even more so for micro-caps.

But don’t get me wrong – Topps Tiles is probably one of the safer penny stocks on the UK market today. Debt looks manageable, recent results are strong, and the high yield makes it worth considering for income.

Confident that the home improvement market will recover, I aim to buy a small allocation of the shares in the coming months, once the current market correction has run its course.

The post Should I buy the UK’s most ‘profitable’ penny stock? Not so fast… appeared first on The Twelfth Magpie.

Cheap valuations combined with generous payout policies make UK shares among the best picks for investors seeking a chunky passive income. And right now, this specialist materials business is offering a pretty juicy 7.8% income stream for shareholders – more than double FTSE 100 index funds currently pay.

Of course, a high payout doesn’t guarantee anything. So is this a trap? Or is it an overlooked opportunity that could unlock phenomenal long-term wealth? Let’s dive in…

A critical supplier to UK home renovators

Topps Tiles (LSE:TPT) is a retailer and distributor of natural stone, ceramic, and porcelain tiles as well as additional related products, including fitting tools, adhesives, and grout.

For most of its history, the company has predominantly targeted DIY customers and tradesmen. But following its recent acquisition of CTD Tiles in 2024, Topps Tiles now has a foothold within the commercial market as well. And it’s since become one of the UK’s largest tile specialist suppliers.

Yet despite this seemingly dominant position, the shares look unusually cheap with a price-to-sales ratio of just 0.25 and a forward price-to-earnings ratio of just 8.4. What’s going on?

Cyclical and structural problems

A quick glance at Topps Tiles share price chart reveals a near-decade-long downward trend, and it’s one of the main reasons why the yield’s so high.

The company is tackling two main types of challenges:

1. Cyclical – With deep exposure to the UK repair, maintenance, and improvement (RMI) market, demand for its products is strongly linked to property transaction volumes and consumer confidence.
2. Structural – There are zero switching costs for customers, and the group doesn’t benefit from the same economies of scale that larger diversified DIY suppliers (like Kingfisher) benefit from.

While Topps Tiles did benefit from a post-pandemic boom in the RMI market, that momentum didn’t continue once higher interest rates and inflation entered the picture. And earnings have come under further pressure with the changes made to the Minimum Wage and National Insurance hikes.

But with all these headwinds seemingly baked into the share price, could Topps Tiles secretly be a top income stock?

The bull case

Management’s fully aware of the challenges surrounding its business, and has subsequently launched its ‘Mission 365’ strategy to get sales and profit margins back on track.

Is this strategy working? The early results suggest the answer might be yes.

The firm’s so far delivered five consecutive quarters of like-for-like sales growth of its flagship Topps Tiles brand. And its newly-acquired CTD Tiles is also seemingly on track to begin actively contributing to the bottom line by September. And when profits rise, dividends often follow.

So what’s the verdict? At 7.8%, the yield’s undeniably attractive. But even with encouraging turnaround progress, shareholder payouts remain fragile. The group’s payout ratio stands at an alarmingly high 95% compared to earnings per share, creating a very real risk of a dividend cut if internal progress or external activity in the housing market stalls.

With that in mind, I think investors should keep close tabs on Topps Tiles, but it might be a bit too early to consider buying the shares.

The post 7.8% dividend yield! A dirt-cheap UK income share to buy today? appeared first on The Twelfth Magpie.

Here are a couple of factors I reckon investors should weigh when considering whether to put money into an ISA or a SIPP.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

There’s usually a different yearly contribution limit

An ISA has an annual limit as to how much can be put in during a single tax year.

That is typically £20k across Stocks and Shares ISAs and Cash ISAs combined.

So if investing only in a Stocks and Shares ISA, £20k could be put in. (Junior ISAs and Lifetime ISAs have lower annual contribution limits).

What about pensions?

For ordinary rate taxpayers who do not take cash out (flexible access), the typical tax-free annual contribution limit to private pensions in a given tax year is £60k.

Therefore, depending on what other private pensions (if any) are held, someone’s SIPP may be able to receive up to £60k of contributions in a given tax year. That sum includes basic rate tax relief (as I explain below) and any other contributions (for example, from an employer).

Unlike an ISA, in some circumstances they may also be able to carry over some unused contribution allowance from prior tax years.

Thus for most investors, the annual contribution allowance for private pensions (including a SIPP) will be higher than for a Stocks and Shares ISA.

That means, even if an investor reaches their ISA contribution allowance, they may still have spare SIPP allowance (or vice versa).

SIPPs offer tax relief on contributions

For ISAs and SIPPs, money put in is taxed as normal. That will typically mean any relevant income tax on it has been levied.

Putting money into a SIPP that has been subject to income tax ordinarily attracts tax relief. Basically the government will top it up with “free money“. That does not happen with an ISA.

But a Stocks and Shares ISA lets an ordinary rate taxpayer withdraw any capital gains, dividends, or capital at any time, without being taxed.

By contrast, the SIPP drawdown rules are less flexible.

Twenty-five percent of a SIPP’s value can typically be withdrawn tax-free from age 55. The remaining cash cannot simply be taken out tax-free like it could from a Stocks and Shares ISA.

How I’m approaching this

One share I own in my Stocks and Shares ISA instead of my SIPP is Topps Tiles (LSE: TPT).

I am hoping for long-term price gain from Topps. In recent years alas it has been a dog, falling 48% in five years.

Topps’ share price fall reflects tough trading conditions and an uncertain outlook for the housing market.

The chain accounts for one in five tiles sold in Britain. So over the long run I think its prospects remain bright.

It has grown partly by buying up assets in a consolidating market, increasing its economies of scale.  

The current yield is a beefy 8.3%.

As I own Topps in my Stocks and Shares ISA, I can take those dividends out tax-free if and when I choose. I do not have to wait until I am a certain age.

The post ISA or SIPP? 2 factors to consider appeared first on The Twelfth Magpie.

A golden income opportunity?

With a market-cap of £85m, Topps Tiles is the largest pure-play specialist tile and flooring retailer in the UK. Yet in recent years, the business has been struggling through some pretty tough market conditions.

With interest rates rapidly rising, activity within the home building and renovation markets slowed considerably. And with it, so did demand for the group’s flagship products. The result has been a pretty painful multi-year decline that dragged the company into penny share territory.

However, recently, things might be starting to change. Over the last 12 months, Topps Tiles shares have climbed by over 20%, driven by a combination of factors, including emerging benefits from self-help initiatives as well as a wider market recovery within the home renovation space.

Looking at the latest trading update, like-for-like sales are back on the rise, along with a strong rebound in pre-tax profits courtesy of steadily expanding profit margins. More encouragingly, this growth appears to be faster than the group’s wider end-markets – an early indicator that Topps Tiles is taking market share away from its competitors.

What’s more, thanks to this jump in profits, dividends are once again covered by earnings, making its 6.8% yield look increasingly attractive. So with both a chunky income and recovery opportunity seemingly on the table, is investing in Topps Tiles a no-brainer?

Risk versus reward

Management’s operational turnaround alongside a wider market recovery is quite encouraging. However, it’s important to highlight that there’s still a long road ahead and Topps Tiles remains somewhat vulnerable.

With the group’s earnings per share for its 2025 fiscal year (ending in September) standing at 3.05p and dividends per share at 2.9p, the payout ratio’s an alarming 95%.

In the long run, this may ultimately not matter. After all, if market conditions continue to improve alongside margins, higher earnings will organically reduce the payout ratio to more sustainable levels.

But if there’s any sudden shock or disruption that interrupts the firm’s recovery progress, management may be forced to put dividends on the chopping block – something that’s happened multiple times.

The bottom line

Overall, Topps Tiles appears to be in a much stronger position compared to the last few years. Demand’s steadily recovering, and providing no surprise spanners are thrown into the works, the penny share’s impressive dividend yield looks quite tempting.

There’s no denying that there remains a high level of risk. But that might be a risk worth considering for some investors in a diversified portfolio. And it’s not the only promising penny stock opportunity I’ve spotted this week.

The post Meet the penny share with a 6.79% dividend yield! appeared first on The Twelfth Magpie.