2 Neil Woodford dividend stocks I’d buy for 2018

These two Neil Woodford stocks have terrific growth and dividend outlooks, 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Developer and builder of multi-occupancy properties Watkin Jones (LSE: WJG) updated the market today on planning consents secured in December. It said its student accommodation division had received the go-ahead for three developments — in Wembley, Walthamstow and Chester — while its build-to-rent division had also secured three consents, in Bournemouth, Sutton and Sheffield.

The company, in which Neil Woodford has a 12% stake, said momentum within the student accommodation division is “excellent” and that it’s “extremely pleased” with the performance of the build-to-rent division in its maiden year. The group, which also owns an accommodation management business, is set to release its annual results a week on Monday and it’s a stock I’d be happy to buy today.

Top grade

City analysts expect Watkin Jones to post earnings per share (EPS) of 13.4p for the year (8% ahead of the prior year) and to pay a well-covered 6.6p dividend. With the shares trading at 220p, the price-to-earnings (P/E) ratio is 16.4 and the dividend yield is 3%.

I viewed the company as fully valued at this level three months ago but it looks more appealing now, due to positive news flow and growth prospects, as well as its forward-sale business model, which provides good earnings visibility. The current student accommodation pipeline stands at 9,120 beds, of which 7,497 have achieved planning consent and 6,090 are forward sold. In the build-to-rent division, the company is targeting the development of 1,500 units over the next four years.

Analysts are forecasting a continuation of 8% annual EPS growth, with a rise to 14.5p for 2018 (P/E of 15.2), followed by 15.6p for 2019 (P/E of 14.1). Meanwhile, the dividend is forecast to rise to 7.3p for 2018 (yield of 3.3%), followed by 8p for 2019 (yield of 3.6%).

This £562m AIM-listed company has a long history, has been managed well and sports a strong balance sheet. These strengths, together with the attractive business model and valuation, lead me to rate the stock a ‘buy’.

Ten out of ten

Another dividend stock in the Woodford stable I’m keen on is 10-pin bowling operator Ten Entertainment (LSE: TEG). The firm is on London’s main market, although its market cap is actually lower than that of AIM-listed Watkin Jones. Still, at £159m and a share price of 253p, Ten is a long way from being a penny stock.

Woodford and his team provided a succinct portrait of the business in a fund update in November: “The company, which listed earlier this year, is the second largest 10-pin bowling operator in the UK, and aims to create value by acquiring existing sites and investing in them to improve their operational and financial performance. [Its] track record of integrating previously acquired assets successfully into its business, coupled with its management team’s decades of experience in the industry, gives us confidence in the company’s future prospects.”

I agree with Woodford’s assessment of the strengths of this business. And, looking at analysts’ forecasts for 2018, its first full year as a listed company, I think the valuation is attractive. The EPS consensus of 19p gives a P/E of 13.3. And with the board having a dividend policy of paying out 60% of earnings, we can look forward to a dividend of 11.4p, which gives a very nice yield of 4.5%. As such, this is another business I’d be happy to buy a slice of today.

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

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »