2016 has been an eventful year for stock market investors. However despite the FTSE 100 index plummeting below 5,600 points in February and suffering further volatility in June after the Brexit vote, my portfolio has fared relatively well over the year. Naturally some holdings have performed better than others, but most importantly, dividends have kept on rolling in and I’ve reinvested these into the market to capitalise on the power of compounding.
Throughout the year, I’ve taken advantage of market turbulence to buy or add to key names such as Diageo and Imperial Brands. However there are plenty of other stocks on my watchlist that I’d like to buy when the price is right, including a few stocks in Neil Woodford’s Equity Income Fund. I’m hoping 2017 presents me with chances to buy them at favourable prices.
British American Tobacco
British American Tobacco (LSE: BATS) is on my watchlist for the main reason that the company’s dividend growth track record is nothing short of phenomenal. Indeed, it has such an amazing dividend growth history that if an investor had bought shares in the company 15 years ago, they would now be enjoying a yield of an incredible 28% on the original purchase price.
The tobacco giant is a key holding for Woodford, making up 6.3% of his portfolio as of the end of October, and the stock has done well for the fund manager, returning an annualised total return of over 12% per year over the last five years.
After a strong run post-Brexit, British American Tobacco’s share price has corrected in the last two months, falling from above 5,000p to around 4,370p today. At this price, the stock yields 3.5% on last year’s dividend payout of 154p per share. While this is a solid yield, given that the company’s average trailing yield over the past 10 years has been a more generous 4.1%, I’m convinced there will be better opportunities to buy British American Tobacco in the future. As such, it’s on my watchlist for now as one to hopefully buy in 2017.
Provident Financial
Another Woodford holding that I have my eye on is Provident Financial (LSE: PFG).
Provident is the fifth largest holding in Woodford’s fund at 5.4% of the portfolio as of the end of October, and with the stock returning an annualised 29% for shareholders over the last five years, I have no doubt that Woodford is happy with its performance.
Provident also has an excellent dividend growth history, having increased its dividend from 64p per share in FY2010 to 120p per share in FY2015, and with city analysts pencilling-in dividends of 131p and 144p for the next two financial years, it appears that this strong dividend growth is set to continue.
Trading on a P/E ratio of 16.1 times last year’s earnings with a dividend yield of 4.2%, Provident looks reasonably priced right now. However, I have no doubt that 2017 will throw up some unexpected market turbulence at some stage or another, and that’s when I’ll be looking to put my cash to work to buy this under the radar financial services company.
