The offer period for Neil Woodford’s new Income Focus Fund closed on 12 April and he immediately got busy building the portfolio with the £553m raised. The fund is aiming to deliver a 5% dividend yield on the 100p offer price.
Today I’m looking at three super-high-income stocks Woodford has been buying since 12 April. I agree with him that these stocks are attractive investments at current prices.
The REIT stuff
Generally, property isn’t an asset class Woodford’s particularly interested in. However, he’s been impressed by the excellent returns delivered by retail specialist NewRiver REIT (LSE: NRR) and sees potential for “a very attractive income stream … as well as long-term capital growth.”
He participated in placings at 300p and 325p in June and December 2015 and added further to his holding in the market sell-off following last year’s Brexit vote. These purchases were for his Equity Income Fund but I suspect the 3.4m shares (£11.5m) he picked up last week were for his new Income Focus Fund. If so, the NewRiver holding would represent a bit over 2% of the portfolio.
This FTSE 250 firm delivered a 20p dividend for its last financial year and analysts are forecasting 21.5p for the current year. At today’s share price of 337p, you’re looking at a very juicy prospective yield of 6.4%.
Buy cheaper than Woodford
Non-Standard Finance (LSE: NSF) is another stock Woodford first bought for his Equity Income Fund. The company offers financial services to the significant part of the UK population that is unable to access mainstream products.
Woodford participated in the company’s IPO at 100p in February 2015 and also in a placing at 85p to fund an acquisition a year later. If his recent purchase of 5.2m shares (£3.14m) is for his new Income Focus Fund, Non-Standard would represent about 0.6% of the portfolio.
The company paid a small maiden dividend last year but the policy is to move to a payout of 50% of normalised annual post-tax earnings. With the shares trading at 60.5p today (a significant discount to Woodford’s earlier buy prices), analysts’ forecasts imply a yield of 4.6% this year, accelerating to 6.4% next year.
New kid on the block
AIM-listed Morses Club (LSE: MCL) is in the same subprime-lending sector as Non-Standard Finance but appears to be a new holding. Woodford disclosed an interest in almost 9.7m shares (£12.3m) last week, which would represent 2.2% of the Income Focus Fund portfolio, although the shares may also have been bought for the Equity Income Fund.
Either way, Morses is another appealing dividend stock. A 6.3p payout for the year ended 28 February is expected when it releases its annual results next Thursday, followed by a rise to 6.9p. This gives a yield of 4.9% increasing to 5.4% at a current share price of 127.5p.
NewRiver, Non-Standard and Morses all look attractive prospects to me, particularly for investors seeking a high income in retirement. However like Woodford, I see these as smaller holdings in a portfolio to sit alongside a core of FTSE 100 blue chips.
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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. 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.