2 cheap Neil Woodford dividend stocks I'd buy for my ISA today

Compass pointing towards 'best price'
Compass pointing towards 'best price'

It's the last day of the tax year, which means that this is your last chance to deposit up to £20,000 in your 2017/18 ISA.

To help you find new income investment ideas, I'm looking at two high-yield dividend stocks which have caught my eye. Both stocks are held by high-profile fund manager Neil Woodford.

This could be safer than housing

If you'd like some exposure to UK property but are concerned about the housing market, student accommodation specialist Watkin Jones (LSE: WJG) could be an ideal alternative.

The Watkin Jones share price rose by nearly 4% in early trade this morning after confirming it's on track to meet full-year expectations. All of the student developments due for delivery by summer 2018 have now been pre-sold to landlords, as have some of those due for completion by summer 2019. In total, the company has secured planning approval for over 8,300 'beds' from its pipeline of 9,800 beds.

Watkin's build-to-rent housing business is also growing. The pipeline of sites with planning approval has risen to 700 homes during the six months to 31 March. The firm now expects to build 1,500 homes over the next five years.

Why I'd buy

The shares have fallen by about 15% since mid-January, when chief executive Mark Watkin Jones announced plans to stand down after 15 years in charge.

I'm not too concerned by this. His departure is being carefully managed and he intends to remain available to the firm for advice. I think the weakness we've seen so far this year could be a buying opportunity.

Unlike conventional housebuilders, this business is focused on the more buoyant student accommodation sector, which should provide stable long-term demand. Alongside this, the company builds houses for large rental landlords, another area where demand is growing.

Taken together, I expect these operations to provide fairly reliable profits. And with the shares now trading on just 12 times forecast earnings and offering a 4% dividend yield, I believe this stock deserves a buy rating.

A reliable 7% yield?

A dividend yield of more than 6% is often seen as a sign that the payout might be cut. But accident management group Redde (LSE: REDD) has maintained a payout above this level for several years without problems.

The group's shares currently offer a forecast yield of 6.9% for the year ending 30 June and of 7.3% for the following year.

One of the reasons for this strong growth is that the company's operations generate a lot of free cash flow. Since Redde started paying dividends in 2014, its payout has been covered by surplus cash every year.

The firm's operations include running a courtesy car fleet of nearly 10,000 vehicles and providing legal services such as compensation claims to drivers involved in collisions. Although the legal side of the business has been affected by regulatory changes, profits seem to have remained stable.

Looking ahead, analysts expect Redde's earnings to rise by about 7.5% to 12.1p per share this year. The dividend is expected to rise by 11% to 11.8p per share.

The group's track record suggests that these figures may be achievable and sustainable. Trading on a P/E of 14 with a prospective yield of 6.9%, I'd rate Redde as a buy.

Buy-And-Hold Investing

Our top analysts have highlighted five shares in the FTSE 100 in our special free report "5 Shares To Retire On". To find out the names of the shares and the reasons behind their inclusion, simply click here to view it immediately with no obligations whatsoever!

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.