Would Neil Woodford buy these 2 dividend turnaround stocks?

Neil Woodford is known as an investor who likes to buy dividend stocks. His funds often have a focus on income return, as well as on the long-term potential of their investments. And with two of his major holdings, Capita and Provident Financial, having experienced difficult periods which have included profit warnings, he seems to be open to the idea of holding turnaround plays within his portfolios.

With that in mind, here are two stocks which appear to have strong income prospects as well as the scope for improved income returns in the long run. Could they be of interest to Neil Woodford?

Improving performance

Reporting on Monday was telecommunications specialist Maintel(LSE: MAI). The provider of managed services and systems integration reported a rise in revenue in its interim results of 68%, with gross profit moving 50% higher. The company benefitted from the integration of Azzurri, which is now almost complete. Annualised synergies in the period were moderately ahead of those anticipated at the time of the transaction.

The business was also able to invest in its ICON cloud platforms. They generated strong growth and could prove to be a major growth path for the company in future years. Its managed services and technology performance was negatively affected by delays to customer installations. However, with the recent acquisition of Intrinsic Technology, it seems to have clear catalysts for growth.

Maintel currently yields 3.8% from a dividend which is covered 2.6 times by profit. This suggests that the company has the potential to post high dividend growth rates in future. And since it trades on a price-to-earnings growth (PEG) ratio of just 0.7, it appears to have a sufficiently wide margin of safety to record a turnaround following its 13% share price fall over the last three months.

Major changes

Also offering turnaround potential after a falling share price in the last three months is global software specialist Micro Focus(LSE: MCRO). It has recorded a share price decline of 4% in the last month, but its recent acquisition of HPE could be the catalyst to boost its profitability in the long run. Recent figures released by HPE show that the business is making progress and could prove to be a good fit with Micro Focus.

One area where the company may be able to add real value for investors is through dividends. It currently yields 3.5% from a payout of 45% of net profit. This suggests that dividends are highly affordable, and with the company having earnings growth potential, it could become a strong income play in the long run.

With a price-to-earnings (P/E) ratio of 14.2, it appears to be fairly priced given its long-term potential. A lack of large-cap technology stocks also means that there could be a scarcity value which translates into a higher valuation over the long run. As such, it appears to be a strong investment opportunity at the present time.

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Peter Stephens owns shares in Capita and Micro Focus. The Motley Fool UK has recommended Micro Focus. 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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