Let’s explore where they could go next and whether I should buy.

Investec: a dividend stock with a solid yield

Specialist Anglo-African banking group Investec (LSE:INVP) has climbed higher than any other FTSE 250 stock over the past year. The blistering 137% growth in the Investec share price hasn’t dented the stock’s passive income appeal. It still yields a healthy 3.7%.

I also like the geographic diversification away from the UK economy that it offers via significant exposure to emerging markets from its Johannesburg operations. At £14.1bn, over 53% of its net core loans are in Southern Africa.

The FTSE 250 bank should also prove resilient in a rising interest rate environment. These factors make Investec stock a great pick to protect my portfolio from the twin threats of a domestic recession and inflation.

On the other hand, credit rating agencies have expressed concerns about rising government debt in South Africa. This could pose a headwind for Investec. Nevertheless, with adjusted operating profit of £377.6m for 2021 and positive forecasts for 2022, the potential risks wouldn’t dissuade me from buying the shares today.

Indivior: a pharma growth stock

Another star performer in the FTSE 250 index is healthcare company Indivior (LSE:INDV). The drug manufacturer’s share price is up by 132% on a 52-week basis and a stunning 585% over two years.

Indivior specialises in opioid addiction treatments. Demand for its products is rocketing due to the opioid problem currently haunting the US. According to the CDC, overdose deaths involving opioids increased by 138% from 2015 to 2021.

Unsurprisingly, Indivior’s financials have benefited. Net revenue increased from $647m to $791m last year, driven primarily by an 88% uptick in net revenue from its extended release injection, Sublocade.

Indivior stock is not without risks, however, demonstrated by its payment of a $600m settlement in 2020 to resolve liability arising from false marketing of its Suboxone Film treatment in Massachusetts, which at one stage threatened to bankrupt the company.

But with its legal troubles in the rear-view mirror and investment in R&D to expand its pipeline into Cannabis Use Disorder treatments, this pharmaceutical company has a bright future, in my opinion. I’d buy.

Drax Group: a FTSE 250 energy stock

Drax Group (LSE:DRX), the owner and operator of the UK’s largest biomass and coal-fuelled power station, has seen its share price almost double over the past 12 months.

Moreover, the company’s adjusted profits rose from £800m to £843m in 2021. Shareholders also benefit from a handy 18.8p dividend per share.

There are clear concerns about investing in a fossil fuel business. However, Drax Group has taken steps to mitigate this.

It is the world’s first energy company to announce an ambition to become carbon negative by 2030. Indeed, the company currently supplies 12% of the UK’s total renewable energy.

Furthermore, there is increasing pressure to diversify away from Russian oil and gas. In this context, I’d buy shares in this homegrown FTSE 250 energy company today.

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Charlie Carman 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.

Meanwhile, FTSE 250 utility Drax (LSE: DRX), which released its half-year results today, hasn’t done a great deal better. Its share price is down around 20% over the three years.

However, I think both Fresnillo and Drax have the potential to deliver strong returns for investors buying at today’s depressed share prices.

Power play

When Drax posted its 2018 results in February, and commented on the outlook for 2019, it said: “We are confident in our ability to continue growing our earnings and advancing our strategy through the year.”

Today, the company reported strong growth in the first six months, with adjusted earnings before interest, tax, depreciation and amortisation up 35% to £138m. Of this, £36m came from pumped storage, hydro and gas-fired generation assets acquired from Scottish Power for £700m at the start of the year. Management said: “Integration is progressing well and we have been pleased with the performance of these assets.”

The shares are up around 3% on the day at 295p, as I’m writing. City analysts’ earnings forecasts for the full year put the stock on a price-to-earnings (P/E) ratio of 11.3. Meanwhile, having hiked the interim dividend 12.5% today, the board said investors can look forward to the same uplift in the full-year payout. This gives the stock a yield of 5.4%.

Already one of the leading generators of flexible, low carbon and renewable electricity in the UK, Drax says it has attractive investment options for growth on the back of the UK’s target of achieving net zero carbon emissions by 2050. I think the modest P/E and generous dividend yield have huge appeal. This is a stock I’d be happy to buy and hold for the long term.

Silver lining long term

Gold and silver prices have a big impact on the revenues and profits of companies that mine the metals. However, operational performance is also key for miners. And on this front, Fresnillo disappointed in 2018. Lower ore grades than expected and operational issues saw the company reduce its silver production guidance through the year.

I was hopeful Fresnillo would put its problems behind it in 2019. However, a Q1 update in April revealed production “slightly weaker than anticipated,” and this was followed by a Q2 update last week in which the company reduced its previous full-year guidance.

Silver production is now expected to be 55-58m ounces (previously 58-61m), mainly due to “lower-than-expected ore grades and ore throughput at the Fresnillo mine.” Gold production guidance has been decreased to 880-910k ounces from 910-930k, mainly due to “a delay in the construction of a leaching pad at Herradura and the lower ore throughput at the dynamic leaching plant.”

I can understand investors’ frustrations, but I think this is the wrong time to give up on Fresnillo. Indeed, I reckon the depressed share price represents an opportunity to buy into the world’s biggest silver producer for the long term. City analysts expect earnings and dividends to fall over 30% this year, but bounce back over 40% in 2020, giving a P/E of 21.9 and a 2.4% yield at a current share price of 773p.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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.

As well as discussing my positive view on SSE, I’ll explain why I continue to see good value in FTSE 250 utility Drax (LSE: DRX), which I first tipped as a recovery stock two years ago.

Optimism

In an article last month on another utility (British Gas owner Centrica), I wrote: “The share price is sufficiently low, and the outlook sufficiently improved, to move to rating the stock a ‘buy’.” Part of what I saw as the improved outlook was the benefit to the big players of a spate of failures of smaller energy suppliers. While the market will undoubtedly remain competitive, I think the recent era of suicidal pricing by new entrants is probably over.

My optimism about this has since been bolstered by a recent announcement from regulator Ofgem. It’s bringing in more stringent tests for any company applying for a licence to enter the energy supply market. This makes me happy to reiterate my personal ‘buy’ rating on Centrica, and is also part of the reason why I attach the same rating to SSE.

Undemanding

Late last year, SSE pulled out of a plan to demerge its household energy supply business and combine it with npower in a new independent company. Management still intends to separate the household supply business — a demerger or sale are among the possibilities — but in the meantime it’s an asset held for disposal, and is profitable and cash flow positive.

I like the remaining core SSE’s future as a leading energy infrastructure company in a low carbon world, focused on regulated networks and renewables, complemented by flexible thermal generation and business energy sales. Meanwhile, my concerns about the company’s trading/hedging arm (responsible for a shock profit warning last year) have been allayed by robust changes to ensure trading positions cannot have a material impact in future.

On an undemanding rating of less than 12 times forecast earnings for the year ending March 2020, and with a prospective yield of 7% on a rebased dividend, I see the stock as very buyable.

Growth and income

Drax is another energy company rapidly evolving for a flexible, low-carbon and renewable generation future. It accelerated its strategy with the recent £702m acquisition of Scottish Power’s portfolio of pumped storage, hydro and gas-fired generation assets. This, together with what management calls “attractive investment opportunities throughout our business,” bodes well for future earnings and dividend growth.

City analysts expect earnings to leap 177% this year, putting the shares at less than 13 times earnings. And the multiple falls to around 10 on forecasts of 27% earnings growth in 2020. A prospective dividend yield of 4.3% this year, rising to over 5% next year, adds to the attraction of what has become a compelling growth-and-income story, in my view. As such, this is another stock I rate a ‘buy’

Finally, a word on the Labour Party’s nationalisation plans. As I explained in a recent article on National Grid, I think there are good reasons for believing shareholders would receive full and effective compensation, if it ever came to the expropriation of their assets.

The post Why I’d buy the SSE share price and 7% dividend yield appeared first on The Motley Fool UK.

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G A Chester 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.

Investing in a range of good quality defensive stocks could provide you with a reliable 4%-5% income to help top up your pension.

Although dividend payments are never guaranteed, utility stocks are popular with income investors for their high yields and income focus. Today I’m looking at two companies from the FTSE 250 which offer attractive yields and have growth potential.

Forecasts unchanged despite disruption

Shares of coal-to-biomass power generator Drax Group (LSE: DRX) fell by around 6% in early trade this morning after the group said that underlying earnings fell from £9m to £7m during the first half of the year.

The shortfall was due to outages caused by a fire at a rail depot in December, and a generator failure in February. These events cut electricity generation, reducing half-year earnings from this part of the business by about one third.

Despite these one -off events, profit guidance for the full year is unchanged. Chief executive Will Gardiner is still confident enough to recommend a 14% increase in the interim dividend, to 5.6p per share.

Renewable focus could pay off

The group is currently commissioning a third biomass pellet factory in the USA, and is in the process of converting its fourth generating unit from coal to biomass fuel.

Mr Gardiner now hopes to get planning permission to convert the group’s two remaining coal generating units into gas-fired generators. A complete exit from coal will be required by 2025, when coal generation will be outlawed in the UK.

Drax’s transformation away from coal is still a work in progress. But the group’s performance is improving and management are working hard to rebuild the dividend, which now offers a 2018 forecast yield of 3.9%.

The acid test may come in 2019, when analysts expect earnings to rise by 118%, from 9.4p to 20.5p per share. If Drax can hit these forecasts, the group’s strategy will be vindicated. I think the evidence so far is encouraging. I’d consider this stock as a long-term buy for income and growth.

A safer alternative?

Drax hasn’t yet achieved the kind of stable, reliable profits investors often look for from utility stocks. One company that has done is water and waste firm Pennon Group (LSE: PNN).

Pennon owns South West Water and the Viridor waste management and energy recovery business. While the group’s water utility provides fairly reliable profits, energy recovery is a fast-growing area. This involves using waste that formerly went to landfill to generate electricity and heat.

The Exeter-based company is in the process of bringing four new Energy Recovery facilities into operation. Management says that Viridor’s expansion will support Pennon’s earnings growth to 2020 and beyond.

As with Drax, Pennon’s diversity appears to be offering investors a chance to receive utility-style dividends and enjoy some growth. The group’s underlying pre-tax profit rose by 3.5% to £258.8m last year. Analysts expect a similar level of growth in 2019 and 2020.

The shares currently trade on about 14 times forecast earnings, with a prospective yield of 5.4%. In my view, this could be the best buy in the utility sector for long-term investors.

The post No pension? Here are 2 FTSE 250 dividend stocks that could help you retire early appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon Group. 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.

Of course, with the FTSE 100 trading at well over 7,000 points, there may be a limited choice on offer for investors seeking good value income shares. Margins of safety may be less enticing than they once were, but with a potent mix of dividend growth and high yields, these two shares could be worthy of a closer look right now.

Turnaround prospects

Reporting on Tuesday was power station operator Drax (LSE: DRX). The company’s performance in 2017 showed a marked improvement versus the prior year, with EBITDA (earnings before interest, tax, depreciation and amortisation) rising by 64% to £229m. All parts of the business delivered growth, which is encouraging for its future potential.

The company continues to deliver on its strategy and remains on target to reach more than £425m in EBITDA by 2025. Its energy supply growth has accelerated due to the acquisition of Opus Energy. It has also increased biomass self-supply through acquisitions and the commissioning of a third biomass pellet plant.

With the UK undergoing an energy revolution, the prospects for Drax appear to be bright. It looks set to deliver significant amounts of profitability in the coming years which could be used to pay its investors a higher dividend. And with the company yielding 5.7% in the current year, it looks set to offer a significant income stream for its shareholders.

Bargain valuation

Also offering the prospect of impressive dividend performance is water company United Utilities (LSE: UU). The company’s shares have been relatively unpopular among investors in recent months. Political risk remains high, while regulatory concerns have also contributed to a 30% fall in the stock’s price in the last year.

The fall in valuation means it now has a dividend yield of over 6%. This is historically exceptionally high and suggests that there’s a wide margin of safety on offer. Furthermore, with dividend growth set to remain ahead of inflation over the medium term, the stock could prove to be valuable for investors who are concerned about the potential impact of higher inflation on their income.

With United Utilities having an uncertain future, now could be a worthwhile buying opportunity for long term investors. Certainly there are risks associated with the stock and its share price performance could suffer yet further if investors remain focused on cyclicals rather than defensive stocks. But with such a high dividend yield, these risks appear to have been factored in by investors. As such, its risk/reward ratio appears to be highly favourable at the present time.

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Peter Stephens owns shares in United Utilities. 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.

I don’t share Woodford’s enthusiasm for all his holdings — for example, I’ve recently turned bearish on Lloyds (one of his top picks) — but there are plenty of stocks where I do see great value for investors buying today.

Generous dividend policy

An under-the-radar AIM-listed firm, which joined the market as recently as July, may not appear a particularly obvious choice. However, Woodford participated in the IPO at 100p a share, taking a 17.15% stake in the business, and he noted: “The company is the leading provider of painting and refit services to the superyacht industry. It is a cash generative business, which is expected to pay an attractive dividend and support a progressive dividend policy going forward.”

The company in question is GYG (LSE: GYG) — Global Yachting Group — and when I first took a look at it, I liked the cut of its jib. In particular, the board intends to pay a dividend for 2017 equating to a yield of 3.2% (calculated on the 100p IPO price and its six months as a listed company and thus based on an annualised yield of 6.4%). The generous dividend policy caught the market’s eye and the shares soon climbed to 145p.

Through choppy waters

A profit warning from the company in November didn’t dampen Woodford’s enthusiasm. Indeed, he bought more shares in the wake of it, taking his stake up to 18.2%. GYG said the reason for profit being below previous expectations was refit decision-making delays by owners, due to the two hurricanes that hit the US and Caribbean in Q3, and also a delay to one substantial scheduled contract, due to the vessel arriving in dock six weeks late. It said none of the group’s contracts had been cancelled, the work merely having been pushed over into 2018.

As I’m writing, analyst forecasts for 2018 show a dividend covered twice by earnings and a yield of 4.6%. The stock looks very buyable to me on this basis because, like Woodford, I believe GYG has good prospects of delivering strong earnings and dividend growth in the coming years.

Energised dividend

Drax (LSE: DRX), the FTSE 250 energy firm, will be better known to most investors than GYG. Woodford began building a stake in the company for his Income Focus Fund in July. This was on the basis that he believed the share price didn’t adequately reflect “recent strategic developments … [which] have diversified and improved the quality of Drax’s earnings streams and have allowed the company to introduce a progressive dividend policy”.

I agree with Woodford, particularly as the share price has drifted a good deal lower since July. Drax’s new dividend policy has been set at a level it says “is sustainable and expected to grow.” It intends to pay out a gross £50m for 2017, which equates to a yield of 4.6%, and analysts expect this to rise to over 5% for 2018. Again, the prospect of a high starting yield and strong growth lead me to rate the stock a ‘buy’.

The post 2 Neil Woodford high-yield stocks I’d buy for 2018 appeared first on The Motley Fool UK.

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G A Chester 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.

I certainly won’t. One of the issues stopping me from doing so is that the company has dived head first into switching to producing energy from burning wood pellets imported from the US. In 2015 the government contributed £450m in subsidies since biomass energy is considered a renewable source of power. However, the government’s stance towards financially supporting this form of power generation has since become much murkier and Drax won’t be helped by the decision to leave the EU and its potential subsidies behind.   

To cope with this, the company’s management has had to change strategy yet again and is moving forward with plans to add four gas-burning generators to its array of coal and wood pellet-burning ones. In addition to diversifying its generating capacity, the company has also moved into selling power directly to businesses through the £340m purchase of Opus Energy last year.

This move may work out in the end but the skill set necessary to run a utility versus that needed for operating a power generator are substantially different. This branching out was also costly as net debt in H1 rose from £85m to £372m year-on-year. This isn’t a major problem yet with EBITDA of £121m recorded in the same period and remains within management’s target of net debt of two times full-year EBITDA, but is worth keeping an eye on.  

That said, moving away from its core competencies, the cloudy outlook for future subsidies for biomass energy, and a dividend yield far below regular old utilities is enough to scare me away from buying shares of Drax today.

Temporary setback? 

I’m much more interested in shares of Topps Tiles (LSE: TPT), which after shedding 25% over the past year now trade at 10.5 times forward earnings and offer up a 4.5% dividend yield.

The cause of investors’ increasingly negative outlook towards the flooring retailer is like-for-like (LFL) sales that contracted by 4.7% in Q3. This was the second straight quarter of negative LFL movement and suggests to many investors that the UK housing market, or at least the refurbishment segment, may be heading downhill.

However, at today’s valuation I believe investors may find Topps Tiles a very impressive income option with surprisingly decent growth potential. This comes from the company opening new outlets to serve both retail and trade customers. At the end of H1 the company had 359 stores and had set itself a medium-term target of 450.

And while slipping LFL sales are a worry, the company is still highly profitable with operating margins stable at around 10% and its dividend is very safe with full-year earnings expected to cover it 2.25 times. I reckon investors who believe the domestic economy will continue to grow in the coming years will find Topps Tiles a very attractively valued income stock with considerable prospects for long-term capital appreciation due to expansion.

The post One beaten-down income share I’d buy and one I’d sell appeared first on The Motley Fool UK.

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Ian Pierce 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

Impressive performance

Reporting on Monday was financial technology company Nex Group (LSE: NXG). It reported an increase in revenue from continuing operations of 18%, which was a rise of 8% at constant currency. Trading operating profit from continuing operations was 4% higher, which is an increase of 12% when the impact from hedging is excluded. This performance was recorded in a tough environment, but with the company’s focus on expanding its product suite to a wider client base proving successful.

Following the sale of the ICAP Global Broking division for £1.3bn, Nex Group is focused on investing for the future. The annual cost savings identified of approximately £25m by 2019/20 will now be offset by incremental investment for growth. This is expected to help boost the company’s bottom line by as much as 30% in the current year, and by a further 14% next year.

Over the medium term, Nex Group is focused on improving operating margins to at least 40%, which could have a further positive impact on its financial performance. Since the company trades on a price-to-earnings growth (PEG) ratio of just 1.2, now seems to be the perfect time to buy it. Indeed, investors do not yet seem to have fully priced-in its growth potential.

Transformation

Also offering share price growth potential is electricity generation business Drax Group (LSE: DRX). It has adopted a new strategy which is set to dramatically improve the financial performance of the business. It is seeking to create a more diversified earnings base which could produce higher-quality returns in the long run. In order to achieve this, it has engaged in M&A activity at a time when the biomass transformation project which commenced in 2012 has been completed.

Looking ahead, Drax is forecast to record a rise in its bottom line of 120% in the current year, followed by further growth of 43% next year. Despite such a high potential growth rate, its shares trade on a PEG ratio of only 0.5. This suggests that after a number of years of major declines in its profitability, the market is pricing-in a wide margin of safety.

While understandable, given the four years of double-digit earnings declines from 2013-2016 inclusive, this could provide new investors in Drax with an opportunity to generate index-beating returns in the long run. As such, the company could be a surprisingly strong growth stock.

The post 2 FTSE 250 growth stocks trading on low ratings appeared first on The Motley Fool UK.

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Peter Stephens 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.

Strong brands

Consumer goods group PZ Cussons (LSE: PZC) released a trading update, saying “the outlook for the financial year ending 31 May remains in line with expectations”.

The company reported a good performance across its brand portfolio in Indonesia and from its beauty division in the UK, whose brands include Sanctuary and St Tropez.

Conditions were tougher for the UK washing and bathing division. However, new product launches under its Imperial Leather, Carex and Original Source brands and margin improvement initiatives offset higher costs as a result of the weaker pound. Similar initiatives improved profitability in Australia, despite ongoing challenging trading conditions. Meanwhile, the company reported some improvement to what has been a challenging backdrop in Nigeria for a number of years.

Elsewhere, trading was in line with expectations in the relatively small markets of Poland, Greece, Ghana, Kenya, Thailand and the Middle East.

Long-term prospects

Cussons is a well-managed business with some great brands, as well as geographical diversification. However, trading conditions happen to have been toughest in its largest markets (particularly Nigeria) in the last few years, so geographical diversification has mitigated rather than prevented downward pressure on revenue and profit.

These conditions won’t always prevail and with Cussons’ steady geographical expansion, the impact on the group of trading in any single market will also reduce over time.

The shares, have been in the doldrums for a number of years and I reckon now could be a good time to buy a slice of the business for the long term. At 330p and based on current-year earnings expectations, Cussons trades on a P/E of 19.9, which compares favourably with larger peers Unilever (22.7) and Reckitt Benckiser (22.3).

Power play

Drax (LSE: DRX), whose main asset is the giant power station of the same name, has endured a truly torrid time over the last few years. In 2012, it started huge investment in transforming this strategically important asset for UK power supply from coal-fired to biomass, only for the government to remove the Climate Change Levy exemption in 2015.

In addition to the government reneging on its commitment, Drax’s troubles were compounded by the challenging commodity markets of the last few years. This has been unfortunate for long-term shareholders, who have seen the company’s earnings and share price collapse. However, I believe Drax has bright prospects for investors buying at around 320p today.

Earnings are set to more than double this year, followed by an increase in excess of 50% next year, giving price-to-earnings growth (PEG) readouts of 0.2 and 0.3, which give the shares potential to move considerably higher in coming years.

With earnings advancing from a low base and the company also starting to diversify through acquisitions, I believe it has a sound strategy to deliver what the chairman described at today’s AGM as “long-term sustainable value for our shareholders”.

The post 2 FTSE 250 stocks I’d buy today appeared first on The Motley Fool UK.

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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK owns shares of PZ Cussons. The Motley Fool UK has recommended Reckitt Benckiser. 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.

However, the market was notified this week that Woodford has taken a 10.2% stake in a business that many readers have probably never heard of. For one thing, the company was floated barely more than a year ago, and, for another, the market it’s on is AIM.

However, like Woodford, this doesn’t put me off. The company is one of the larger businesses on AIM, has a long history, offers exposure to a niche growth sector and pays a nice dividend.

Family fortunes

Watkin Jones (LSE: WJG) can trace its roots back to a business founded by carpenter Huw Jones in 1791. Current chief executive Mark Watkin Jones is the ninth generation of the family to head the company. It’s now a leading UK developer and constructor of multi-occupancy properties, with a focus on student accommodation.

Descendents of the founding family and related parties sold shares at 100p at flotation, and then more shares at 140p in a recent placing, but still retain a significant stake in the business. Woodford participated in the placing, taking 26.1m shares for an outlay of £36.5m.

Still very buyable

Watkin Jones released maiden annual results as a listed company in January. These were in line with expectations and saw the board deliver on its dividend promise and point to a positive outlook for 2017.

You’ll have to pay a bit more than Woodford paid for his shares — they’re currently trading at 150p — but they still look very buyable to me at this level. Current-year forecasts give an undemanding P/E of 11.2, falling to just 9.9 for 2018, while the prospective dividend yield is 4.2%, rising to 4.4% for next year.

Unfortunate events

While Watkin Jones is a brand new investment for Woodford, FTSE 250 power generator Drax (LSE: DRX) is a long-time holding that he’s been pumping more cash into recently.

Drax has suffered a tough few years. In a particularly unfortunate turn of events, just as the company upgraded the UK’s biggest power station from coal to biomass, the government ended green energy subsidies.

Bright future

Despite its troubles of recent years, the future is looking brighter for Drax. Diversification, including through acquisitions, is expected to drive earnings rapidly higher.

With the shares trading at 328p — lower than Woodford paid when he bought last month — the current-year forecast P/E is 25.2 and the prospective dividend yield is 3%. This may not scream ‘value’ but the anticipated momentum of recovery next year brings the P/E down to a more reasonable 17.4, with the dividend yield rising to an attractive 4.7%. As such, I think now could be a good time to buy a slice of this business.

The post Neil Woodford just bought a dividend stock you’ve probably never heard of appeared first on The Motley Fool UK.

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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and 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.