Can you beat Neil Woodford with these 6%+ yields?

These two dividend stocks could turbocharge your investment returns.

| 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.

Neil Woodford is considered to be one of the UK’s best fund managers and luckily, the secret to his success isn’t that secret. 

Indeed, as Woodford has himself revealed before, his strategy relies on finding companies with an attractive, sustainable dividend yield with room for growth and holding for the long term.

Unfortunately, due to the high demand for Woodford’s funds, his flagship CF Woodford Equity Income fund only yields 3.3% and there are better income opportunities out there. Here are two such stocks that both yield more than 6% and could help you beat Neil Woodford at his own game.

Long-term savings 

Legal & General (LSE: LGEN) is the UK’s leading pensions and investments manager. With nearly 200 years of experience, the company certainly knows how to grow sustainably. Growth has accelerated in recent years as more and more customers come to it looking for wealth management and retirement products.

Between year-end 2012 and 2016, Legal’s earnings per share have expanded by 60% with the company notching double-digit earnings per share growth in most years during this period. As Legal is a long-term savings manager, the company has high visibility on future cash flows, which means management can set the dividend at a sustainable level every year with room for growth — precisely the kind of conservative dividend policy Neil Woodford is looking for. Right now, shares in the company support a forward dividend yield of 6.2%, and City analysts expect management to increase the payout by 1p per share next year, giving a yield of 6.6% at current prices. The payout is covered 1.5 times by earnings per share and at the time of writing shares in Legal trade at a forward P/E of just 11.2. 

Lucrative business

Billionaire Warren Buffett knows all too well how profitable the insurance business can be, having built a large part of his fortune in insurance. And you don’t have to be a billionaire to profit from the industry’s success. 

Direct Line Insurance (LSE: DLG) has only been a public company since 2012, but management is already working hard to ensure that the business is known for its shareholder returns. Management is looking to return any excess cash to investors, and off the back of this goal, City analysts expect the group to pay regular and special dividends of 24.2p per share for 2017, equal to a yield of 7%. A similar payout is expected for 2018. Analysts have pencilled-in a 2018 yield of 7.5%. 

Direct Line’s 2016 results were hit by the government’s decision to change the Ogden rate — the discount rate used to calculate the value of compensation claims – but City analysts believe this was just a one-off. After falling 20% in 2016, analysts believe the company’s earnings per share will grow by 37% for 2017. Based on this prediction, the shares are trading at a forward P/E of 12.

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.

Rupert Hargreaves has no position in any 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

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »