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2 penny stocks I’d buy to generate a passive income!

Hand holding pound notes

Penny stocks are often unfairly maligned as a share sub-class which are high risk. Companies that fall into this sub-£1 category are regularly considered as more financially lightweight than other more expensive UK shares.

It’s a charge that can prompt speculation of under-par dividends, a lack of money to invest for growth, and insufficient financial strength to survive when profits slump.

Dig a little deeper though, and it’s clear to see that this doesn’t always hold up. Some of London’s biggest companies can be bought at very little cost. At 46p per share, Lloyds trades well inside penny stock territory, while robust FTSE 100 stocks ITV and JD Sports Fashion have also traded below £1 relatively recently (ITV as recently as the spring, in fact).

2 top penny stocks for a passive income

So it’s my opinion that, with a little digging, it’s possible to find penny stocks that can provide me with a decent passive income. I’m not just talking about shares that can provide me with big dividends in 2022 either.

There are many cheap UK shares like this I think could provide juicy payouts in the long term, a critical thing to remember when it comes to hunting for passive income.

I think these top penny stocks will deliver big dividends in 2022 and keep growing shareholder payouts beyond next year. Here’s why I’d buy them for my UK shares portfolio today.

#1: Assura Group

I believe Assura Group (which trades at 69p) is a rock-solid dividend share for me to buy today. It rents out primary healthcare properties such as GP surgeries, assets which occupancy rates and income from remain constant at all points of the economic cycle.

This excellent earnings visibility means that it’s able to keep raising annual dividends even during the ongoing Covid-19 crisis.

The fly in the ointment is Assura’s commitment to growth via acquisitions. This leaves it open to risks that can harm shareholder returns, such as overpaying for an asset. I still think it’s a great dividend buy despite this risk though. For the year to March 2022, Assura carries a 4.4% dividend yield.

#2: Greencoat Renewables

Like our need for healthcare services, our demand for electricity to keep the lights on and the kettle boiled also remains stable, regardless of broader economic conditions. This is why I’d buy Greencoat Renewables to generate passive income.

This particular penny stock owns stakes in wind farms in Ireland and is pushing into mainland Europe to deliver future earnings growth.

I’m confident that Greencoat Renewables (which trades at €1.10 per share) has the balance sheet strength to keep acquiring assets while paying big dividends. So do City analysts. The renewable energy stock carries a meaty 5.7% dividend yield for 2022.

I’d buy it for my portfolio, despite the threat that profits could take a hit if the wind stops blowing. Calm conditions reduced electricity generation by a third at FTSE 100 firm SSE in the first half.

The post 2 penny stocks I’d buy to generate a passive income! 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 recommended ITV and Lloyds Banking Group. 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.