Why I'd buy Neil Woodford stocks ITV plc and Imperial Brands plc this week

Today, I'm looking at two Neil Woodford stocks that offer low valuations and big dividends. Both look very tempting at their current prices.

ITV(LSE: ITV) is a relatively new addition to his Income Focus fund. The portfolio manager purchased shares in the broadcaster in September, saying worries about the structural threat posed to the business by digital media had "created an attractive entry point."

I share his stance that ITV looks attractively valued right now. Trading around 250p at the beginning of last year, the stock has fallen to 150p, and now sports a forward P/E ratio of just 9.7. That valuation simply looks too cheap to me.

A trading statement released this morning entitled "ITV remains on track to deliver" revealed robust results. While total external revenue for the nine months to the end of September fell 1%, revenue at ITV studios was up 9% and online, pay & interactive revenues climbed 8%. Management confirmed that it was "confident in the underlying strength of the business." Executive Chairman Sir Peter Bazalgette said: "We will enter 2018 in good shape with a strong operating performance underpinned by a robust balance sheet, and we look forward to the arrival of our new CEO, Carolyn McCall, early in the New Year."

Today's numbers confirm that ITV's strategy of rebalancing the business is working. It's no secret that the advertising landscape is challenging at present, but ITV is now a much more diversified business than it used to be, and generates over 50% of its revenues from sources other than spot advertising.

Furthermore, of particular appeal to me is ITV's huge dividend yield. The broadcaster has lifted its payout considerably in recent years, last year paying investors 7.2p per share plus a special dividend of 5p. This year, City analysts expect a payout of 8.4p, a yield of 5.5% at the current share price. Coverage is forecast to be around 1.9 times.

Given the low valuation and formidable dividend yield, I believe ITV shares offer considerable potential for long-term investors at the current share price.

Imperial Brands

Another Woodford holding I believe has strong potential is Imperial Brands(LSE: IMB). Like ITV, its share price has suffered recently. Last August, the stock was trading above 4,100p. Today, the shares change hands for just 3,120p. That's a bargain, in my opinion.

Imperial released full-year results for the year ended 30 September last week, and revealed that it is making progress on its strategy of strengthening its brand portfolio. While total tobacco volume fell 4.1%, growth brands volume increased 5.5%. Chief Executive Alison Cooper commented: "We are well placed to continue to enhance shareholder value by building on the momentum in our tobacco business and realising opportunities in next generation products."

The highlight of the results, in my opinion, was the 10% dividend hike. When you consider that Imperial has now increased its payout by 10% per year for nine consecutive years, it becomes apparent that the tobacco giant is a true cash cow. The company will pay each shareholder 170.7p per share this year, a yield of 5.5% at the current share price. Furthermore, Imperial reaffirmed its policy of "growing dividends by at least 10% per year over the medium term."

Trading on a P/E of just 11.7 vs 17.5 for rival British American Tobacco, I believe Imperial Brands offers strong value right now.

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Edward Sheldon owns shares in Imperial Brands and ITV. The Motley Fool UK has recommended Imperial Brands and ITV. 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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