Ace City investor Neil Woodford has thrashed the FTSE 100 over the last five, 10 and 15 years. Hence, I always keep an eye on his holdings for promising investment ideas.
Woodford is very, very selective in picking shares for his 20 billion pounds funds. Fewer than one in five of the UK's top 100 companies earn a place in his market-beating portfolios.
The following five companies are his highest-yielding blue chips based on forecast dividends:
Share Price (pence)
Dividend Yield (%)
|Vodafone (LSE: VOD.L )
|BAE Systems (LSE: BA.L )
|AstraZeneca (LSE: AZN.L )
|SSE (LSE: SSE.L )
|Centrica (LSE: CNA.L )
The telecoms titan is a top 10 holding in Woodford's funds with a weighting of around 5%. Vodafone paid an ordinary dividend of 9.52 pence per share last year, plus a special dividend of 4 pence per share. The latter flowed from the company's 45% stake in U.S. business Verizon Wireless. As I explained at the time, there is good reason to believe Vodafone may pay further special dividends as an indirect result of the cash flow needs of Verizon Wireless parent Verizon Communications. Vodafone's prospective yield suggests a special dividend of around 3 pence per share is baked into the analysts' consensus forecast for the current year on top of an expected 10.18-pence-per-share ordinary dividend.
The defense contractor is not one of Woodford's very largest holdings but sneaks into the top 10 of his High Income fund with a weighting of 3.7%. The company has suffered from recent defense spending cutbacks in its major U.S. and U.K. markets, and analysts are forecasting fairly flat profits between 2012 and 2013. However, the dividend is expected to grow in line with inflation and to be twice covered by earnings.
The drugs group has an aggregate weighting of over 8% in Woodford's funds, making it his largest holding. AstraZeneca's revenues are under pressure from patents expiring on some of its major drugs, and analysts are forecasting flattish profits between 2012 and 2013. However, as with BAE, Astra's dividend is expected to grow in line with inflation and to be twice covered by earnings. You'll be able to see if things are on track when Astra announces its interim results this Thursday. Last year, the company declared an interim dividend of $0.85 cents (51.9 pence) per share at this stage.
SSE and Centrica
Woodford has been generally bearish on utilities in recent years, believing that regulators are making returns unattractive for shareholders. However, he deems two companies in the sector worthy of a place in his portfolios: SSE (formerly Scottish and Southern Energy) and Centrica, which owns British Gas and other energy businesses.
SSE ends its fiscal year in March, and its dividend target is to increase its 80.1-pence-per-share dividend in 2011-12 by 2% more than inflation in 2012-13. Centrica has a December year end and has interim results scheduled for this Thursday. Centrica paid a total dividend of 15.4 pence per share last year, with 4.29 pence per share declared at the interim stage.
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