2 ‘secret’ value stocks I’d buy to boost my dividend income!

I’m searching for the best value stocks to buy to boost my passive income. I think these two penny stocks could be what I’m looking for.

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Most retail investors focus on buying FTSE 100 and FTSE 250 shares. And there’s nothing wrong with that. Both indices are crammed with top value stocks to buy after 2022’s heavy stock market volatility.

However, looking further afield can help supercharge an investor’s long-term returns.

Small-cap companies like penny stocks are out of favour with many investors. This gives those who take time to explore the London Stock Exchange’s lesser-known companies a chance to snap up some undervalued beauties.

Here are two ‘secret’ value stocks I’d buy to boost my dividend income. Each costs less than £1 to buy.

Michelmersh Brick Holdings

Rising interest rates pose a near term threat to brick manufacturer Michelmersh Brick Holdings (LSE: MBH). Demand for the penny stock’s products could sink if they cause a housing market crash.

That said, I still think the company’s profits will soar over the long haul. Britain’s chronic property shortage and growing population mean that housebuilders will need to supercharge homes production over the next decade.

Analysts at the National Housing Federation believe the UK will have to build 340,000 new homes between 2019 and 2031. This should naturally provide a big catalyst to brick demand.

On top of this, Britain’s ageing housing stock provides Michelmersh with excellent long-term opportunities. The average age of a home here is among the highest in Europe. So product sales to the repair, maintenance and improvement (or RMI) sector could rise sharply as time goes on.

Michelmersh currently trades on a forward price-to-earnings (P/E) ratio of 8.7 times. This leaves a wide margin of safety.

The company carries a market-beating 4.9% dividend yield too. And the predicted dividend is covered 2.3 times by anticipated earnings.

This provides decent compensation for dividend investors should earnings disappoint.

Sylvania Platinum

Investing in mining stocks can be risky business. The complex business of mineral extraction can be costly. Common problems at the exploration, development and production phases can also leave revenues forecasts in tatters.

These hazards are reflected in the rock-bottom P/E ratios of many mining shares. Take Sylvania Platinum (LSE: SLP) for instance. This South Africa-based business trades on a forward earnings multiple of 3.7 times.

It’s my opinion that Sylvania’s price could soar as steps to combat the climate emergency accelerate.

Platinum and palladium are key materials in car and truck exhausts. And lawmakers across major regions are demanding higher loadings of the materials to filter out harmful emissions.

Platinum is also a key ingredient in the manufacture of green hydrogen. This provides excellent opportunities for shares like Sylvania as the switch from fossil fuels intensifies. Analysts suggest the green hydrogen market could grow at an annualised rate of almost 30% between now and 2030.

One final reason why I like Sylvania shares: at current prices the penny stock carries a mighty 8.2% dividend yield. In addition, forecast earnings cover the dividend by 3.3 times.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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