The latest monthly update from Neil Woodford’s flagship equity income fund is hot off the press. It shows the master investor has been pumping cash into some familiar FTSE 100 names but also into some less well-known stocks, including a new position in an obscure little investment trust.
Attractively valued
The update tells us that Woodford has taken advantage of recent share price weakness to increase his holding in troubled retailer Next (LSE: NXT). It’s a stock he first bought after launching his equity income fund in June 2014. He added on several occasions last year as the shares went into decline and his latest buying represents a further ‘averaging down’.
The shares are now at levels not seen since 2012, with the latest hammering coming as a result of another profit warning, issued on 4 January.
Woodford and his team confess that the challenges of cost inflation and the growing threat from online rivals “have been causing more of a problem for Next than we had expected”. Nevertheless, Woodford remains bullish on this “extremely well-managed, disciplined company with a well-invested asset base and healthy cash generation”.
Next returns most of its free cash flow to shareholders and will be paying a series of special dividends this year. At a current share price of 3,827p, giving a 12-month forward P/E of just 9.5 and a forecast dividend yield of 4.1%, I agree with Woodford that “its shares continue to look attractively valued”.
An 8% yield
From a high street stalwart known to everyone to a little investment trust that I imagine few readers will have heard of. Certainly, I hadn’t come across Honeycomb Investment Trust (LSE: HONY) before reading that Woodford has taken a “new, albeit small position” in it.
The trust was launched in December 2015, targeting a 10%+ annual return and a mammoth 8% dividend yield on the issue price of 1,000p (once fully invested and leveraged) from the acquisition of interests in loans made to consumers and small businesses as well as other counterparties.
The trust fits well with Woodford’s belief in new finance opportunities in spaces that mainstream lenders have vacated or in which they can’t compete. The shares have now risen to 1,075p — a 6% premium to last reported NAV — but the prospective dividend yield is still over 7%, so I imagine the premium won’t put off income-hungry investors. Not one for me but investors seeking a high yield may want to investigate further.
Four more buys
Paypoint (LSE: PAY) is a rather less exotic company in the financial services industry. It operates market-leading payment collection networks across 40,000 convenience stores in the UK and Romania.
Woodford increased his stake in this FTSE 250 firm during January and you can now pick up the shares even cheaper, at 940p. The company has delivered steady growth and the shares look very buyable to me on a 12-month forward P/E of 14.3, with a nice prospective dividend yield of 5.1%.
Elsewhere, Woodford added to small caps Horizon Discovery and Norwegian Idex, as well as blue chip AstraZeneca. The latter is another Woodford favourite that currently sports a nice yield — 4.8%.