Master equity income investor Neil Woodford knows a thing or two about picking great dividend shares after more than a quarter of a century in the game.
If you’re looking for income ideas for your ISA, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US), SSE (LSE: SSE) and Legal & General (LSE: LGEN) are three Woodford heavyweight high yielders you may want to consider.
GlaxoSmithKline
Big pharma companies have been a feature of Woodford’s funds for most of his career. Despite patent expiries on some blockbuster drugs holding back growth in the industry lately, Woodford reckons the sector “still looks very attractive” for long-term returns for shareholders.
GlaxoSmithKline has been a dividend stalwart over the years. The UK’s top pharma group delivered an 80p a share payout for 2014. At a recent share price of 1,635p, the trailing yield is 4.9% — well above the 3.4% of the FTSE 100 as a whole.
Glaxo has indicated the dividend will be maintained at 80p for 2015. However, the Board also plans to return cash of £4bn (worth another 80p a share or so) to shareholders, following the recent completion of a deal with Swiss group Novartis.
SSE
The UK’s “Big Six” energy companies are currently facing a challenging business environment, an investigation by the Competition and Markets Authority relating to the supply and acquisition of energy, as well as various threats from the Labour Party that could disrupt business and crimp profits.
SSE has said that for its financial year ending 31 March, it intends to raise the dividend in keeping with its policy of increases at least equal to RPI inflation. We could see a payout of 88p, giving a yield of 5.7% at a recent share price of 1,554p.
However, the company expects earnings for the year to come in at about the same level as last year, and says that its ability to increase earnings is “subject to additional risk in 2015/16 and 2016/17”. The dividend may, or may not, come under pressure, but Woodford is sanguine, and has been increasing his holding in SSE in recent months.
Legal & General
There are 15 banks and insurers in the FTSE 100. Woodford is invested in just one: Legal & General. L&G has made a good recovery since the financial crisis, and both earnings and dividends have been rising strongly.
The company hiked the 2014 dividend by 21% to 11.25p, giving a yield of 3.8% at a recent share price of 293p. Now, L&G’s current yield may not be as high as Glaxo’s and SSE’s, but the insurer is set fair for much stronger growth in the next couple of years. Analysts have pencilled in a dividend of 14.5p for 2016, pushing the yield up to close to 5%.