Renowned fund manager Neil Woodford has been thrashing the market for a quarter of a century. Woodford is a very selective stockpicker. Hence, I always keep an eye on his holdings for promising investment ideas.
BT Group (LSE: BT-A) (NYSE: BT.US), Imperial Tobacco Group (LSE: IMT) and Provident Financial (LSE: PFG) are three Woodford picks that have delivered double-digit dividend growth over the past three years — with further big increases forecast to come.
Despite famously getting out of banks before the financial crisis, Woodford has been a long-time supporter of ‘non-standard’ lender Provident Financial. The company’s doorstep lending operation has been supplemented in recent years by online loans (Satsuma), credit cards (Vanquis Bank) and car finance (Moneybarn).
Provident Financial has increased its dividend by an average of 10.2% a year over the last three years. In July, the company upped this year’s interim payout by 10%. Analysts reckon the full-year dividend will advance 15%, with a similar rise in 2015.
At a current share price of 2,157p, Provident Financial offers a forward yield of 4.7% — well above the market average of 3.5%.
The tobacco sector has been a favourite of Woodford’s for as long as I can remember. Imperial Tobacco, whose strongest growth brands include Davidoff, Gauloises Blondes and JPS, is currently weighted at over 6% in Woodford’s fund.
Imperial Tobacco has increased its dividend by an average of 11.3% a year over the last three years. In June. the company upped this year’s half-year payout by 10.2%. Management’s policy is to grow the dividend by “at least” 10% a year “over the medium term”.
Imperial Tobacco offers a forward yield of 5.1% at a current share price of 2,583p.
BT is another of Woodford’s high-conviction bets, with a top 10 place in his fund. Momentum in the business is growing as the company’s expansion from fixed line phones to broadband, mobile and pay-tv continues apace.
BT has increased its dividend by an average of 13.8% a year over the last three years, and management is targeting 10-15% growth for each of the next two years. The company reported everything on track for the current year in its most recent trading update, and half-year results are due to be announced on Thursday this week.
BT offers a 3.4% forward yield at a current share price of 370p.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.