2 Neil Woodford high-yield stocks I'd buy for 2018

Drax train

Renowned fund manager Neil Woodford has built his success over a quarter of a century primarily by investing in great dividend stocks. Currently, his Income Focus Fund is a particularly rich source of high-yield ideas.

I don't share Woodford's enthusiasm for all his holdings -- for example, I've recently turned bearish on Lloyds (one of his top picks) -- but there are plenty of stocks where I do see great value for investors buying today.

Generous dividend policy

An under-the-radar AIM-listed firm, which joined the market as recently as July, may not appear a particularly obvious choice. However, Woodford participated in the IPO at 100p a share, taking a 17.15% stake in the business, and he noted: "The company is the leading provider of painting and refit services to the superyacht industry. It is a cash generative business, which is expected to pay an attractive dividend and support a progressive dividend policy going forward."

The company in question is GYG(LSE: GYG) -- Global Yachting Group -- and when I first took a look at it, I liked the cut of its jib. In particular, the board intends to pay a dividend for 2017 equating to a yield of 3.2% (calculated on the 100p IPO price and its six months as a listed company and thus based on an annualised yield of 6.4%). The generous dividend policy caught the market's eye and the shares soon climbed to 145p.

Through choppy waters

A profit warning from the company in November didn't dampen Woodford's enthusiasm. Indeed, he bought more shares in the wake of it, taking his stake up to 18.2%. GYG said the reason for profit being below previous expectations was refit decision-making delays by owners, due to the two hurricanes that hit the US and Caribbean in Q3, and also a delay to one substantial scheduled contract, due to the vessel arriving in dock six weeks late. It said none of the group's contracts had been cancelled, the work merely having been pushed over into 2018.

As I'm writing, analyst forecasts for 2018 show a dividend covered twice by earnings and a yield of 4.6%. The stock looks very buyable to me on this basis because, like Woodford, I believe GYG has good prospects of delivering strong earnings and dividend growth in the coming years.

Energised dividend

Drax(LSE: DRX), the FTSE 250 energy firm, will be better known to most investors than GYG. Woodford began building a stake in the company for his Income Focus Fund in July. This was on the basis that he believed the share price didn't adequately reflect "recent strategic developments ... [which] have diversified and improved the quality of Drax's earnings streams and have allowed the company to introduce a progressive dividend policy".

I agree with Woodford, particularly as the share price has drifted a good deal lower since July. Drax's new dividend policy has been set at a level it says "is sustainable and expected to grow." It intends to pay out a gross £50m for 2017, which equates to a yield of 4.6%, and analysts expect this to rise to over 5% for 2018. Again, the prospect of a high starting yield and strong growth lead me to rate the stock a 'buy'.

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G A Chester 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.

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