Image source: Getty Images
Snapping up a few dividend-paying penny shares is a quick and easy way to work towards building a second income stream. Not only is a cheap price helpful, it adds an extra layer of flexibility to an investment.
This is because the payouts that dividend companies reward to shareholders can be withdrawn as cash or reinvested to grow the portfolio.
Unfortunately, most cheap stocks don’t pay dividends because the company’s more focused on reinvesting into the business. So when I noticed this tiny news and media company offered a 12% yield, I had to take a closer look.
Budget-friendly… with risk
With a £186m market-cap and shares trading at just 58p each, Reach (LSE: RCH) is very much in small-cap territory. Since 2021, it’s been paying a full-year dividend of 7p per share, making the current yield an impressive 12% (indeed, third-party data puts the yield around 12.4%).
Fifty thousand of the 58p shares would cost around £29,000, paying dividends worth £3,480 a year. Okay, that’s no small one-off investment but it could be built over time. For example, by contributing just £200 a month and reinvesting the dividends, it would take less than seven years.
But with both the share price and market-cap down about 34% this year, could it be a value trap rather than a bargain?
Risks to consider
The print media industry has had a tough time lately, and Reach hasn’t escaped the pain. With digital media and online advertising cornering the market, traditional revenues have suffered.
In the third quarter of 2025, the company reported total revenue down around 2.5% year-on-year, with print revenue falling by almost 4% and print advertising dropping roughly 13%. Meanwhile, digital revenue edged up just over 2%.
The falling price could be attractive to value hunters, with a price-to-earnings (P/E) ratio of 3.68 and price-to-sales (P/S) ratio of 0.36. But those metrics alone mean very little. Without some concrete indications of a turnaround in the near future, there’s a risk the price could keep falling.
Looking ahead
Layoffs have already begun as part of a £20m restructuring aimed at achieving 4%-5% cost savings. However, the company has said it remains confident of meeting full-year market expectations despite softer advertising conditions.
While digital growth’s happening, it’s still a battle to replace legacy revenues. Management’s acknowledged that the transition remains challenging, and analysts have warned that free cash flow coverage of the dividend could tighten if advertising revenues weaken further.
On the flip side, an investor who’s comfortable with risk might consider this as a means to potentially build a second income stream. If the dividend remains intact and the share price stabilises, then the £3,480 annual income could be meaningful. But that’s far from guaranteed.
The bottom line
In short, this stock offers a tempting yield for anyone looking to build a second income. But high yield often reflects high risk. An investor should weigh up the chance of dividend cuts, the structural challenges facing the media industry and the company’s ability to navigate the digital shift.
If management delivers on its cost savings and revenue goals, the generous dividend might continue. If not, that double-digit yield could vanish just as quickly. Either way, it’s one to consider, albeit with a cautious approach.
