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2 Neil Woodford dividend stocks I’d buy right now

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Neil Woodford is having a tough time at the moment. Investors are withdrawing their capital from the portfolio manager’s funds at a dramatic rate, with his flagship Equity Income fund shrinking in value by around £1bn in the first five weeks of the year.

A glance at the holdings across Woodford’s range of funds reveals some names that are out of favour at present. There are plenty of stocks that I personally wouldn’t invest in. Having said that, Woodford does own some stocks that I believe look attractive right now. Here’s a look at two.

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ITV

At the end of December, ITV (LSE: ITV) was the 13th largest holding in Woodford’s Income Focus fund, with a weighting of 2.2%. The portfolio manager bought ITV back in September, stating at the time that the broadcaster is a “highly-cash generative business with a good track record of returning excess cash to shareholders through special dividends.” Woodford went on to explain that the stock’s valuation looked attractive, and that the risks surrounding the industry were priced into the share price.

I agree with Woodford’s stance on ITV, and believe that the risk/return profile of the stock looks attractive right now. For a start, the valuation is low. With analysts expecting earnings of 15.7p per share for FY2017, the P/E ratio is just 10.3. That’s 45% lower than the FTSE 100 average trailing P/E of 18.8.

Furthermore, with the shares having fallen over 20% in the last year, the dividend yield looks very tempting. Analysts expect a payout of 7.8p per share for FY2017, a yield of 4.8% at the current share price.

ITV is a much more diversified business than it used to be, and now generates 50% of its revenues from sources other than spot advertising. An update in November confirmed that its Studios and its Online, Pay and Interactive divisions were performing well. As a result, I believe the stock is a ‘buy’ right now.

Softcat

Another Woodford-owned stock I have my eye on is Softcat (LSE: SCT). The company is an IT specialist, providing organisations with data centre, networking and security solutions. At 31 December, it was the 14th largest holding in Woodford’s Income Focus fund, with a weight of 2.2%.

Softcat appeared on my radar early last year. At the time, the shares were changing hands for around 300p. Today, the share price is around 520p, an increase of nearly 75% in just 13 months. Despite the share price rise, I still like the investment case here.

A trading update released last week confirmed that momentum is strong at present. The company advised that adjusted operating profit for the six months to the end of January rose approximately 19%.

Looking ahead, demand for the company’s expertise in areas such as cybersecurity and data storage solutions is likely to remain robust, in my opinion. Analysts’ projections reinforce my view, with sales expected to rise 12% this year.

Adding weight to the investment thesis are the company’s dividend prospects. Analysts expect the payout to double this year, taking the yield to around 3.5% at the current share price. The stock is not a bargain, on a P/E of 22.7, but I believe that valuation is justified, given the potential growth on offer.

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Edward Sheldon owns shares in ITV. The Motley Fool UK has recommended ITV. 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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