5 Neil Woodford High-Yield Shares
LONDON -- Ace City investor Neil Woodford has thrashed the FTSE 100 over the last five, 10, and 15 years. Hence, I always keep an eye on his holdings for promising investment ideas.
Woodford is very, very selective in picking shares for his 20 billion pound funds. As few as one in 10 of the U.K.'s top 350 companies earn a place in his market-beating portfolios.
The following five firms all offer prospective dividend yields of more than 5%:
Share Price (pence)
AstraZeneca (ISE: AZN.L)
Vodafone (ISE: VOD.L)
Catlin (ISE: CGL.L)
ProvidentFinancial (ISE: PFG.L)
GlaxoSmithKline (ISE: GSK.L)
The drugs group has a weighting of more than 8% in Woodford's funds, making it his largest holding. The company's revenue is under pressure from patents expiring on some of its major drugs. Nevertheless, analysts are expecting this year's dividend to advance 4% on last year -- twice covered by earnings -- to give a yield of 6.3% at the current share price. Astra has recently appointed a dynamic new chief executive, which bodes well for the future. Pascal Soriot, poached from Swiss rival Roche, has a strong record of innovation and deal-making -- things that Astra could have done better on in recent years.
The mobile giant is a top-10 holding in Woodford's funds with a weighting of just under 4%. The prospective dividend yield in the table above (5.8%) is based on Vodafone's guidance for a full-year dividend of at least 10.18 pence a share. However, if the analysts' consensus is right, Vodafone will also pay out a special dividend of around 3 pence a share, bringing the yield up to 7.5%. This will depend on U.S. business Verizon Wireless, in which Vodafone has a 45% stake, paying out a dividend, as it did last year. Vodafone shareholders can be hopeful, because Verizon Wireless' parent, Verizon Communications, needs cash from Wireless to pay down debt and support its own dividend.
Woodford is generally bearish on financial stocks. However, he does hold a clutch of mid-cap nonlife insurers, and Catlin is one of them. This global specialty property/casualty insurer and reinsurer had a poor 2011 -- like others of its ilk -- in what was an exceptional year for catastrophe losses. Nevertheless, the company raised its dividend by 6%, reflecting confidence in future prospects, and has also increased this year's interim dividend by the same order. Catlin is on track to meet analysts' consensus expectations of a full-year dividend covered twice by earnings and yielding 5.8%.
Another one of the few financial stocks held by Woodford is Provident Financial, a doorstep lender and owner of Vanquis Bank, whose customers are people who have been turned down for credit elsewhere. Provident held its dividend flat from the credit crunch until 2010 but last year raised it 9%, helped by the fact that Vanquis is now generating surplus capital over and above that required to fund its own growth and maintain its regulatory capital base. Provident's dividend last year was covered 1.3 times by earnings -- just above its targeted minimum cover of 1.25 times. Analysts are forecasting the same dividend growth and cover for the current year, giving a yield of 5.3% at the current share price.
The U.K.'s biggest pharma group vies with rival AstraZeneca for the top spot in Woodford's funds. Like Astra, GlaxoSmithKline's weighting in the funds is greater than 8%. Glaxo's prospective dividend yield of 5.2% is fully one percentage point lower than Astra's, reflecting the market's lesser concerns about Glaxo's patent expirations. Glaxo's dividend is expected to be covered 1.6 times by earnings.
Three of the five shares I've highlighted feature in an exclusive Motley Fool report: "8 Shares Held By Britain's Super Investor," which is free to download right now. If you're interested in learning about Woodford's enormously successful investing style and discovering the attractions of some of his favorite blue chips, simply click here for your free report.
Further investment opportunities:
The article 5 Neil Woodford High-Yield Shares originally appeared on Fool.com.G. A. Chester has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.