2 Neil Woodford high-yield stocks I’d buy for 2018

These two Neil Woodford high-yield picks could be great stocks for 2018, says G A Chester.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Renowned fund manager Neil Woodford has built his success over a quarter of a century primarily by investing in great dividend stocks. Currently, his Income Focus Fund is a particularly rich source of high-yield ideas.

I don’t share Woodford’s enthusiasm for all his holdings — for example, I’ve recently turned bearish on Lloyds (one of his top picks) — but there are plenty of stocks where I do see great value for investors buying today.

Generous dividend policy

An under-the-radar AIM-listed firm, which joined the market as recently as July, may not appear a particularly obvious choice. However, Woodford participated in the IPO at 100p a share, taking a 17.15% stake in the business, and he noted: “The company is the leading provider of painting and refit services to the superyacht industry. It is a cash generative business, which is expected to pay an attractive dividend and support a progressive dividend policy going forward.”

The company in question is GYG (LSE: GYG) — Global Yachting Group — and when I first took a look at it, I liked the cut of its jib. In particular, the board intends to pay a dividend for 2017 equating to a yield of 3.2% (calculated on the 100p IPO price and its six months as a listed company and thus based on an annualised yield of 6.4%). The generous dividend policy caught the market’s eye and the shares soon climbed to 145p.

Through choppy waters

A profit warning from the company in November didn’t dampen Woodford’s enthusiasm. Indeed, he bought more shares in the wake of it, taking his stake up to 18.2%. GYG said the reason for profit being below previous expectations was refit decision-making delays by owners, due to the two hurricanes that hit the US and Caribbean in Q3, and also a delay to one substantial scheduled contract, due to the vessel arriving in dock six weeks late. It said none of the group’s contracts had been cancelled, the work merely having been pushed over into 2018.

As I’m writing, analyst forecasts for 2018 show a dividend covered twice by earnings and a yield of 4.6%. The stock looks very buyable to me on this basis because, like Woodford, I believe GYG has good prospects of delivering strong earnings and dividend growth in the coming years.

Energised dividend

Drax (LSE: DRX), the FTSE 250 energy firm, will be better known to most investors than GYG. Woodford began building a stake in the company for his Income Focus Fund in July. This was on the basis that he believed the share price didn’t adequately reflect “recent strategic developments … [which] have diversified and improved the quality of Drax’s earnings streams and have allowed the company to introduce a progressive dividend policy”.

I agree with Woodford, particularly as the share price has drifted a good deal lower since July. Drax’s new dividend policy has been set at a level it says “is sustainable and expected to grow.” It intends to pay out a gross £50m for 2017, which equates to a yield of 4.6%, and analysts expect this to rise to over 5% for 2018. Again, the prospect of a high starting yield and strong growth lead me to rate the stock a ‘buy’.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Looking for value stocks? Here’s 1 I’d buy and 1 I’d avoid!

This Fool delves deeper into two value stocks she’s had her eye on and explains why she’s bullish on one,…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

With the Airtel Africa share price in pennies, is it a bargain?

With the Airtel Africa share price having slumped by a quarter in just one month, this shareholder considers some of…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Are these 2 defensive FTSE 100 stocks shrewd buys after recent updates?

This Fool takes a closer look at these FTSE 100 stocks. She admires their defensive traits -- but does that…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The FTSE 100 closes up after full-year results from leading UK firms – are they buys?

Earnings season brings about a lot of ups and downs for the FTSE 100. Yesterday had some particularly good releases,…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy NVIDIA stock as a British investor?

NVIDIA stock is up two-thirds this year alone. Our writer considers some pros and cons, specifically given that he is…

Read more »

Investing Articles

With £2,000 in excess savings, I’d buy 41 shares in this Warren Buffett dividend stock

Stephen Wright thinks one of the best dividend shares to buy right now might be a Warren Buffett stock that’s…

Read more »

Investing Articles

How many Aviva shares do I need to collect a £100 monthly income?

Aviva shares are well suited for passive income purposes. Our writer works out how many would be needed for a…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

£2k to invest? I’d buy 883 shares of this overlooked dividend giant for a second income

This FTSE 100 dividend stock has had a mixed time since floating in 2019 but it looks like a brilliant…

Read more »