A search for big dividends in the master investor's market-beating funds.
Ace City investor Neil Woodford has thrashed the FTSE 100 (UKX) 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 funds. As few as one in 10 of the UK's top 350 companies earn a place in his market-beating portfolios.
The following five firms all offer prospective dividend yields of over 5%:
The drugs group has a weighting of over 8% in Woodford's funds, making it his largest holding. The company's revenues are 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 (OTC: RHHBY.PK), 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 10.18p a share. However, if the analysts' consensus is right, Vodafone will also pay out a special dividend of around 3p a share, bringing the yield up to 7.5%. This will depend on US business Verizon Wireless (NYSE: VZ.US), in which Vodafone has a 45% stake, paying out a dividend as it did last year. Vodafone shareholders can be hopeful because Verizon Wireless's 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 non-life insurers. 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 through 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 UK'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 over 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 expiries. Glaxo's dividend is expected to be covered 1.6 times by earnings.
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Further investment opportunities:
> G A Chester does not own shares in any of the companies mentioned in this article.