2 top Neil Woodford stocks I'd buy for retirement now

Examining the list of holdings in Neil Woodford's new Income Focus Fund, there are many stocks that have considerable long-term appeal. Here's a look at two stocks I like at current valuations.

National Grid

Shares in National Grid(LSE: NG) have pulled back significantly over the last six weeks, declining from nearly 1,100p to around 930p today. The company was very much in favour this time last year as defensive stocks shot up in the wake of the Brexit vote, however with recent talk of energy tariff rate caps and utility companies being nationalised, sentiment towards the stock has deteriorated.

Buying high quality companies when sentiment is low can be a rewarding long-term strategy and I'm wondering whether the share price drop has created a dividend opportunity. The utility giant has a fantastic record of regularly increasing its dividend, lifting the payout from 28.7p 10 years ago, to 44.3p for FY2017. The recent drop in the share price has pushed the yield up considerably, from 4.1% to a high 4.8%.

The payout was covered by earnings 1.3 times last year, and National Grid aims to grow the ordinary dividend at least in line with the rate of RPI inflation each year for the foreseeable future. That's reassuring for income investors, and means that those depending on dividends for living expenses won't lose purchasing power with inflation picking up.

City analysts anticipate the company generating earnings of 63.5p per share for FY2018, meaning that the stock's forward P/E ratio is a reasonable 14.7. Therefore, for those looking for a core dividend-paying holding, I believe National Grid could offer value at the current share price.

Legal & General Group

Another Woodford holding that has great appeal in my opinion is Legal & General Group (LSE: LGEN). I rate the insurance giant as one of the best dividend stocks in the FTSE 100 right now.

The company paid out dividends of 14.4p last year, equating to a yield of a huge 5.6% at the current share price. While other companies in the FTSE 100 have yields of similar or higher magnitude (HSBC, GlaxoSmithKline, Royal Dutch Shell, BP etc), many of these companies have low dividend cover and have struggled to increase their payouts in recent years. Not Legal & General. Last year's dividend payout was covered 1.6 times by earnings and dividend growth of 7%, 19% and 21% has been recorded over the last three years. City analysts anticipate a rise of a further 7% this year, meaning that dividend growth should easily eclipse inflation.

Despite the strong dividend growth, the shares have spent much of the last two-and-a-half years drifting sideways, as concerns in relation to increased regulation have affected sentiment at times. However, with analysts pencilling in earnings of 22.1p for this year, Legal & General now trades on a forward P/E of just 11.7, an attractive valuation, given the lofty valuations in many other areas of the market.

Legal & General was the second largest holding in Woodford's new fund as of the end of May, suggesting that the fund manager is confident in the long-term prospects of the insurer. I'm confident in the stock's prospects too, and have a decent sized position in my own ISA.

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Edward Sheldon owns shares in Legal & General Group, GlaxoSmithKline and Royal Dutch Shell. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended BP, HSBC Holdings, and Royal Dutch Shell B. 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.

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