Up 17% in a day with a 6% dividend yield? I just had to investigate this unusual penny stock

Penny shares are inclined to have risky costs so it isn’t unusual to see one surge 17% in a single day. Nevertheless, not many pay a dividend.

Since they’re often small, early-stage corporations, they prioritise reinvesting any earnings again into the enterprise to gas progress and help operations. So after I noticed this small-cap Scottish IT firm pop up on my radar yesterday (31 October) with a 6% yield, I needed to examine.

Reaching for the clouds

Glasgow-based iomart Group (LSE: IOM) operates throughout the cloud companies and managed internet hosting sector. 

At present, its cloud companies section contains managed internet hosting, information safety and storage options, producing over £100m yearly. It’s more and more targeted on increasing cloud choices by way of acquisitions and partnerships to broaden its attain​. One current instance contains Kookaburra Topco, the holding firm of Atech Help, a Microsoft Options Companion for mid-sized enterprises.

The main focus of the enlargement is to draw companies that need superior IT techniques with out constructing in depth in-house infrastructure. It’s significantly occupied with sectors resembling healthcare and finance the place safe, scalable IT options are in excessive demand​.

Along with cloud companies, it operates an Easyspace section. It is a smaller a part of the enterprise, targeted on webhosting companies for small companies and people. It brings in about £12m yearly​.

Financials

With a market-cap of round £95m, iomart maintains a manageable debt ratio of 19.6%, with short-term belongings overlaying liabilities. Nevertheless, its earnings have proven a slight decline just lately, attributed to aggressive pressures and the necessity for infrastructure investments in a quickly evolving cloud market​.

In its full-year 2024 outcomes launched in August, income elevated 9.9% whereas earnings fell 7.9%. Regardless of the latter’s fall, the outcomes exceeded analyst expectations for the inventory.

Its trailing price-to-earnings (P/E) ratio’s engaging, at 13 instances earnings. Nevertheless, that is anticipated to rise to twenty instances as earnings are forecast to say no. Regardless of these points, it has a gradual money move and its plans to develop by way of acquisitions may place it for a stronger aggressive stance within the coming years.

I couldn’t discover a motive for this week’s positive factors however analysts wanting on the inventory give it a median 12-month value goal of £1.47. That may be a large 97% improve from the present value of £0.74. I believe that is perhaps a bit optimistic, however who is aware of?

Dividends

The important thing worth proposition of iomart is the 6% dividend yield. It has an appropriate if considerably strained payout ratio of 86% and a reasonably good observe report of funds. Nevertheless, whereas the yield’s elevated up to now 10 years, the full-year dividen’s declined from 6p per share to three.3p.

That’s adopted the falling share value, which has dropped 76% up to now 5 years. In reality, the inventory solely just lately achieved penny inventory standing after falling beneath 99p earlier this month.

Having completed the analysis, I’m not satisfied iomart’s on observe to show round its earnings simply but. It’s worthwhile for now but when that adjustments, the engaging dividend might be minimize. I’d must see extra definitive proof of progress potential earlier than I purchase. 

That stated, if its current enterprise acquisitions find yourself turning the share value round, I’d definitely rethink the inventory.