Two dirt-cheap, high-income Neil Woodford holdings I'd buy

Although Neil Woodford's funds have been in the news for all the wrong reasons of late due to poor performance, I reckon retail investors still have plenty to learn from one of the best income-focused British investors of recent memory. To that end, there are a handful of high-income Woodford-owned stocks that I'd be happy to own for a long time to come.

A turnaround with short term rewards

One is discount greeting card retailer Card Factory (LSE: CARD). The company's share price has fallen 40% over the past year as two profit warnings have dented investors' confidence in its ability to continue profitably growing.

However, while the decline in profits is lamentable, I think selling has been overdone and that its current valuation of just 6-to-7 times full-year EBITDA is far too low for what is still a highly profitable, growing business.

This is especially true as Card Factory shareholders aren't just banking on future growth from steady estate expansion, but are also currently reaping the rewards of the group's high cash flow that comes from owning its design, printing and distribution facilities. Last year the company's revenue grew to £422.1m while its small drop in profits still left it generating £94m in EBITDA and £72.6m in pre-tax profits.

This allowed management to reward shareholders with a 9.3p per share ordinary dividend and 15p special dividend that together represent a trailing yield of 13.3%. Now, management has warned that this year's special payout will be in the 5p-10p range, reflecting lower profits, but even at the low end of that range and with no growth in the ordinary dividend, shareholders would be looking at a fantastic 7.8% dividend yield.

While Card Factory is certainly facing headwinds from the general slowdown in retail, the company's sales are still moving forward thanks to new store openings, its margins remain admirably high thanks to its vertically-integrated business model, and shareholders are receiving huge dividends. Together, I think this means Card Factory warrants a closer look from income investors.

Cash flow galore

Another Woodford holding high on my watch list is payment solutions provider PayPoint (LSE: PAY). The company's business revolves around providing small retailers like convenience stores and corner shops with the ability to take and process cash and card payments as well as ancillary services like ATMs, parcel pick-up and return, and bill pay functionality.

This is a highly, highly profitable business with few capital investment needs, which means plenty of cash to return to shareholders. Last year, PayPoint's business generated £119.6m in net revenue and pre-tax profits of £52.9m. After investing in growth opportunities like its new PayPoint One terminal and expansion in Romania, management returned most of this cash to shareholders.

Last year, these returns took the form of a 45.9p ordinary dividend and 36.6p special payout that will be repeated in each of the next three years, barring management discovering any interesting acquisition targets. Altogether, this means a yield of 8.9% at today's share price.

This great dividend payout together with the aforementioned growth opportunities, high barriers to entry for competitors and an attractive valuation of just 15 times earnings, all make this one income stock I like a lot. Sadly, as a US investor both of these stocks are difficult to purchase, otherwise I'd happily own them with my retirement in mind.

Buy-And-Hold Investing

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory and PayPoint. 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.