Bitcoin has just crept above $4,000 at time of writing and the crypto-currency refuses to completely fade away. I still believe its glory years are in the past, though, unless someone finds a practical use for it.
Buy-to-let’s glory years also appear to be over, as the Government’s tax clampdown starts to bite. Why go through the bother of finding a property, slapping down a deposit, doing the place up, sourcing tenants, chasing the rent, and dealing with emergencies when the Treasury will snaffle your profits? I prefer to trade stocks at the push of a button, and enjoy tax-free capital growth and dividend income inside a stocks and shares Isa.
These two income and growth stocks are highly rated by star fund manager Neil Woodford. His star may have waned in recent years but they could be his better calls.
The first is FTSE 100 listed housebuilder Barratt Developments (LSE: BDEV), which is the biggest holding in his flagship fund CF Woodford Equity Income, making up 7.32% of the entire portfolio.
Housebuilding stocks have been on a bumpy ride since the EU referendum, given their outsize exposure to the domestic UK economy, but are underpinned by the Government-backed Help to Buy scheme, now extended to 2023 for first-time buyers.
Income and growth
The big attraction is its juicy dividend, now with a forecast yield of 7.6%, covered 1.5 times by earnings. Last month, management signalled that it plans to continue its generosity, paying out special dividends amounting £175m in November 2019 and again in November 2020. That’s on top of its regular dividends.
The £5.91bn group can afford to be generous, as it recently published a 7.2% increase in first-half revenues with profit before tax up 19.1%.
Earnings forecasts look steady although not spectacular, with 5% growth expected in the year to 30 June 2019, followed by 3% the year after. The other attraction is its low valuation, currently 8.8 times forward earnings.
The market is worried about the impact of Brexit. If there is no deal, housebuilders could be hit particularly hard. If we get a resolution, it should be an immediate beneficiary.
Brexit is less of a worry with Woodford’s second favourite stock, global tobacco giant Imperial Brands (LSE: IMB). This makes up 6.16% of his portfolio and again, the income is the attraction here, with a forecast yield of 7.9% and cover of 1.4. Most analysts expect the dividend per share to rise over the next couple of years, along with earnings.
Smoking is in long-term global decline but as my colleague G A Chester points out, Imperial Brands retains pricing power and this has allowed it to steadily increase revenues despite falling volumes. It is also exploring new markets such as e-cigarettes and cannabis, although these will remain at the mercy of regulators, with the US Food and Drug Administration cracking down on sales of flavoured e-cigarettes, in a blow to its Blu e-cig brand.
Woodford clearly still believes in Imperial might, although his backing lacks the kudos it once had. A forecast valuation of 9.1 times earnings suggests the stock is still a bargain despite the 12% rise in its share price this year. Both stocks are also a lot less bother than Bitcoin and buy-to-let.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.