2 Neil Woodford high-yield stocks I’d consider buying today

Roland Head takes a look at two high-yield picks you might want to consider.

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Fund manager Neil Woodford has attracted a lot of press coverage for his contrarian stock picks in recent months.

But today I want to look at two Woodford dividend stocks you might not be familiar with. Both offer above-average yields, including one staggering 8% payout. Should we be buying these shares?

Bowled over

One of the more interesting companies to float on the London Stock Exchange last year was Ten Entertainment Group (LSE: TEG). This is a 10-pin bowling group similar to Hollywood Bowl, but smaller.

The group’s shares have performed strongly since flotation, climbing by 45% to today’s price of 240p. But the valuation continues to look quite reasonable to me, so I think the shares deserve a closer look.

Sales rose by 8.9% to £71m last year, thanks to like-for-like growth of 3.6% and new openings, which added 5.3%. The group is continuing to expand and announced the acquisition of two new sites today, on leisure parks in Chichester and Warrington.

Cheap enough to play

It’s been a few years since I went bowling. But I do know that modern bowling alleys come complete with bars, restaurants and other opportunities for spending money.  This makes them quite profitable businesses. My calculations indicate the group has generated an underlying operating margin of 12.3% over the last 12 months.

Last year’s IPO enabled Ten’s management to repay most of the group’s debt, leaving net debt of just £7m at the half-year point. That’s very comfortable when set against forecasts for a 2017 net profit of £11m.

Earnings are expected to rise by about 16% to 19.1p per share in 2018, putting the stock on a forecast P/E of 12.6. A dividend payout of 11.6p per share is expected, giving a prospective yield of 4.8%. In my view, this could be an attractive income stock to tuck away.

An affordable 8% yield?

A dividend yield of 8% would normally signify a company with problems. But there are occasional exceptions to this rule. One potential example is real estate investment trust Regional REIT (LSE: RGL).

This £370m property firm owns a mix of office and light industrial properties in regional locations across the UK. It’s now in its third year of listed life. The group’s shares haven’t made much progress and currently trade a couple of pence below their listing price.

But Regional REIT’s dividend progress has been far more impressive. REITs are given tax advantages in exchange for being required to pay a large proportion of earnings to shareholders as dividends.

The group’s payout is expected to reach 7.8p per share for 2017, giving a forecast yield of 7.9%. The 2018 payout is currently expected to be 8.1p, giving a prospective yield of 8.2%.

These payouts are dependent on continued high levels of occupancy and growth in rental rates. Cheap debt is also essential — if interest rates rise then profits could fall. So far the trust appears to be handling these issues. Occupancy remained stable at around 82% during the first nine months of last year. A recent refinancing has extended the average maturity of the group’s debt from two years to 6.3 years.

If you share Mr Woodford’s view that the UK economy will remain stable, then I believe Regional REIT could be a good income 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 considered so you should consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hollywood Bowl. 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.

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