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2 Neil Woodford income shares I’d buy today

If there’s one thing Neil Woodford is known for it’s his ability to unearth often under-the-radar stocks paying out hefty dividends. And two of his income holdings are very much on my mind of late in this low-yield investing environment.

Success, one 99p card at a time 

First up is discount greetings cards and party paraphernalia retailer Card Factory (LSE: CARD). Last year the company paid out 24.1p in ordinary and special dividends that yield a whopping 7.4% at today’s share price.

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And while normally a yield this high should act as a warning sign, Card Factory is actually still growing at a very decent clip as it takes market share from competitors by opening new stores and undercutting them on price while offering similar quality of cards. In fact, in the half year to March, the company’s revenue was up 6.1% year-on-year (y/y) to £176.9m thanks to new store openings and a very, very healthy 3.1% uplift in like-for-like sales.

Now, EBITDA during this period did fall 4% y/y to £32.8m, but I don’t believe this is too much of a worry. That’s because most of this drop can be chalked up to the rise in the national living wage and foreign exchange headwinds that are affecting all retailers.

Rather than passing on these costs to customers, management decided to eat the cost. By doing so, the company is putting the ball in the court of its competitors. They can either raise prices or absorb the costs themselves as well. Either way, this plays into Card Factory’s hands as its industry-thumping 18.2% EBITDA margin means it can suck up these costs and continue to profitably undercut higher-cost-of-production rivals.

This is the key to the company’s rapid and profitable growth across the UK and as long as it owns its own production facilities, it will continue to benefit. With a huge dividend, strong growth potential and a valuation of only 16 times forward earnings, Card Factory is one Woodford-backed share I’d love to own for the long term.

Catching up to the leader?

Another Woodford income holding I like is sub-prime doorstep lender Morses Club (LSE: MCL), which currently pays out a 4.8% dividend. Some investors may have been scared away from the sector after the recent problems of market leader Provident Financial, but if anything, these problems have made Morses Club even more attractive.

That’s because Provident’s problems were entirely self-inflicted. Its push to bring self-employed agents in-house led to mass resignations. This was a boon for Morses Club as it hoovered up thousands of these agents, who have taken their customer books with them. In the half year to August, the company’s territory builds leapt from 114 to 434 and its customer numbers jumped 14% to 233,000.

These new customers helped increase the firm’s revenue for the period by 14.8% compared to the year prior. Now, pre-tax profits for the period only rose from £8.6m to £8.7m, but this is to be expected as the influx of new agents required substantial forward payments to help them build their books. Over the coming year, these investments should begin to turn into profitable growth for the group as a whole.

With its shares priced at only 12 times forward earnings despite a bumper dividend and enviable growth prospects, I believe Morses Club could be a bargain pick at today’s prices.

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Ian Pierce 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.

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