Neil Woodford's success as a fund manager has made him one of the most talked about UK investors of his generation. As a result, many investors buy his income fund. However, at the present time it yields around 3.3%. This is lower than the FTSE 100's yield of around 3.7%. It is even lower than the yields of the following two companies - both of which could deliver superior income returns to the fund over the long run.
Over-50s service provider Saga(LSE: SAGA) currently yields 3.7%. While that's only 30 basis points higher than the amount offered by Neil Woodford's income fund, the company's dividend growth prospects are significant. Saga is expected to report a rise in shareholder payouts of over 50% next year, which puts its shares on a forward yield of 5.6%. This makes them one of the highest-yielding shares in the FTSE 350 at the present time.
Despite such a rapid dividend growth outlook, Saga's shareholder payouts are set to remain highly affordable. Its bottom line is forecast to rise by 5% this year and by a further 6% next year. And since dividends are due to be covered 1.3 times by profit next year, there is scope for them to rise at a similar pace to profitability in the long run. This is likely to mean that the company offers a real-terms rise in dividends in future years.
Since Saga is a relatively stable and well-diversified business, it appears to have a business model which offers robust and resilient dividends. Therefore, it could prove to be a popular income stock for the long run at a time when the UK's economic outlook is highly uncertain.
Road to recovery
The last few years have been somewhat mixed for investment management company Man Group(LSE: EMG). Its profit has swung wildly and despite a couple of strong years of double-digit growth in 2013 and 2014, its earnings were lower in 2016 on a per share basis than they were in 2012.
Clearly, Man Group is not a stable income stock. The nature of its business means that its financial performance can change quickly. However, for less risk-averse investors it could prove to be a sound income play. A key reason for this is its dividend yield, which stands at 5%.
Looking ahead, Man Group is expected to record a rise in its bottom line of 40% in the current year, followed by further growth of 32% next year. This should allow it to raise dividends at an annualised rate of around 10% during the same period. As a result, it could be yielding nearly 6% in 2018.
Of course, the company's earnings growth outlook can quickly change. This means a wide margin of safety is required for potential investors. Since Man Group has a PEG ratio of 0.3, it appears to offer upside potential. Therefore, for investors who are able to cope with a potentially high degree of volatility, now could be the right time to buy Man Group.
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Peter Stephens owns shares of Saga. 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.