A search for big dividends among the master investor's favourite blue chips.
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 selective in picking shares for his £20 billion funds. Fewer than one in five of the UK's top 100 companies earn a place in his market-beating portfolios.
The following five companies are his highest yielding blue chips based on forecast dividends:
The mobile giant paid an ordinary dividend of 9.52p per share last year, and shareholders got an additional special dividend of 4p per share, funded from a mammoth payout received from US business Verizon Wireless in which Vodafone has a 45% stake. Vodafone has said there will be no repeat special dividend from Verizon Wireless's latest payout. Nevertheless, with the ordinary dividend expected to be around 10.2p, the yield is still a juicy 6.4%.
The Footsie's number two drugs group is Woodford's number one holding, with a weighting of around 9% in his funds. AstraZeneca's revenues and profits are declining as a result of patents expiring on some of its major drugs. Analysts are forecasting earnings per share (EPS) to fall 18% in 2012 and 7% in 2013 before bottoming out in 2014. Nevertheless, the dividend is expected to grow in line with inflation through the period.
Woodford hasn't shown much faith in utilities of late, arguing that regulators are making returns unattractive for shareholders. However, SSE (formerly Scottish and Southern Energy) is one exception. SSE's directors are confident of extending the company's long record of annual above-inflation dividend growth. For the year ending March 2013 they are targeting an increase of at least 2% more than RPI inflation, to around 84p, with annual above-inflation increases thereafter.
The defence contractor has suffered from defence spending cutbacks in its major US and UK markets but is a top 10 holding in Woodford's funds. The shares got a bit of a boost from news of the US 'fiscal-cliff' deal at the start of the year, but analysts haven't been persuaded to change their forecasts: modest EPS growth in 2013 and a dividend increase in line with inflation.
The UK's number one drugs group is Woodford's second-largest holding -- weighted at around 8% -- just behind fellow pharma, AstraZeneca. Glaxo's expiring patent issues aren't as severe as AstraZeneca's. Analysts are forecasting that a modest fall in Glaxo's EPS in 2012 will be followed by high single-digit earnings growth and mid-single-digit dividend growth in 2013 and 2014.
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> G A Chester does not own shares in any of the companies mentioned in this article. The Motley Fool has recommended shares in Vodafone.