Neil Woodford released his monthly portfolio commentary for August yesterday, and it’s an interesting read. The portfolio manager is under a little bit of pressure at the moment, with poor performance from stocks such as Provident Financial and AA dragging his portfolio returns down. Woodford made several tweaks to his portfolios during August, adding to a few holdings and cutting back on others. Here’s a look at four dividend stocks he recently bought more of.
Long time tobacco bull Woodford disposed of his entire holding in British American Tobacco in July, stating that he was no longer seeing much value in the sector. However, the portfolio manager held on to his holding in Imperial Brands (LON: IMB) (IMB.L), commenting at the time:
“We still retain some exposure to tobacco through Imperial Brands, which remains undervalued in our view, but the valuation opportunity elsewhere in the sector has largely played out.”
Woodford clearly sees value in Imperial Brands, as he added to his position in the Income Focus fund during August.
Imperial is forecast to pay dividends of 171p this year, equating to a prospective dividend yield of 5.1% at the current share price.
Lloyds Banking Group
Back in May, Woodford surprised many investors when he advised that his Income Focus fund had a position in Lloyds Bank (LON: LLOY) (LLOY.L).
Woodford said at the time:
“Specifically, we view Lloyds as a well-managed bank with a conservative approach to its balance sheet. Its valuation looks very attractive in our view, and it has the ability to pay a very healthy and growing level of dividend.”
Lloyds’ current dividend yield is just under 4% after the bank paid out regular dividends of 2.55p last year (plus a 0.50p special dividend). However, it’s worth noting that City analysts expect some big dividend growth to come from Lloyds this year and next. If analysts are right, Lloyds could potentially yield almost 7% on FY2018’s dividend payout.
Breakdown cover provider AA (LON: AA) (AA.L) has not been a good performer for Woodford. Indeed, a poor trading update during August saw the stock fall 35% during the month. As a result, Woodford chose to add to his holding, stating:
“The shares’ disproportionate reaction just underscore how warped the market’s behaviour has become in recent weeks. From our perspective, the logical thing to do when shares are under pressure for non-fundamental reasons, is to add to the position, which is exactly what we have done with the AA.”
AA floated in 2014, and paid a maiden dividend of 9p per share for FY2016. The dividend was increased to 9.3p this year, however analysts expect a cut to 8.74p for FY2018. Dividend cuts are a dividend investor’s worst enemy, in my view, so this is a stock I’ll be steering well clear of.
Lastly, Woodford also added to his holding in commercial property company British Land (LON: BLND) (BLND.L) during August.
British Land paid out dividends of 29.2p for FY2017, which at the current share price, equates to a yield of a high 4.9%.
While that yield sounds attractive, investors should note that dividend growth hasn’t been high in recent years, with the payout growing at an annualised rate of 2.6% over the last four years. Dividend coverage here also looks a little low, averaging just 1.18 times over the last five years according to Hargreaves Lansdown calculations.
Disclosure: Edward Sheldon, CFA owns shares in Imperial Brands.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.