2 Neil Woodford dividend stocks I'd buy for 2018

Developer and builder of multi-occupancy properties Watkin Jones(LSE: WJG) updated the market today on planning consents secured in December. It said its student accommodation division had received the go-ahead for three developments -- in Wembley, Walthamstow and Chester -- while its build-to-rent division had also secured three consents, in Bournemouth, Sutton and Sheffield.

The company, in which Neil Woodford has a 12% stake, said momentum within the student accommodation division is "excellent" and that it's "extremely pleased" with the performance of the build-to-rent division in its maiden year. The group, which also owns an accommodation management business, is set to release its annual results a week on Monday and it's a stock I'd be happy to buy today.

Top grade

City analysts expect Watkin Jones to post earnings per share (EPS) of 13.4p for the year (8% ahead of the prior year) and to pay a well-covered 6.6p dividend. With the shares trading at 220p, the price-to-earnings (P/E) ratio is 16.4 and the dividend yield is 3%.

I viewed the company as fully valued at this level three months ago but it looks more appealing now, due to positive news flow and growth prospects, as well as its forward-sale business model, which provides good earnings visibility. The current student accommodation pipeline stands at 9,120 beds, of which 7,497 have achieved planning consent and 6,090 are forward sold. In the build-to-rent division, the company is targeting the development of 1,500 units over the next four years.

Analysts are forecasting a continuation of 8% annual EPS growth, with a rise to 14.5p for 2018 (P/E of 15.2), followed by 15.6p for 2019 (P/E of 14.1). Meanwhile, the dividend is forecast to rise to 7.3p for 2018 (yield of 3.3%), followed by 8p for 2019 (yield of 3.6%).

This £562m AIM-listed company has a long history, has been managed well and sports a strong balance sheet. These strengths, together with the attractive business model and valuation, lead me to rate the stock a 'buy'.

Ten out of ten

Another dividend stock in the Woodford stable I'm keen on is 10-pin bowling operator Ten Entertainment(LSE: TEG). The firm is on London's main market, although its market cap is actually lower than that of AIM-listed Watkin Jones. Still, at £159m and a share price of 253p, Ten is a long way from being a penny stock.

Woodford and his team provided a succinct portrait of the business in a fund update in November: "The company, which listed earlier this year, is the second largest 10-pin bowling operator in the UK, and aims to create value by acquiring existing sites and investing in them to improve their operational and financial performance. [Its] track record of integrating previously acquired assets successfully into its business, coupled with its management team's decades of experience in the industry, gives us confidence in the company's future prospects."

I agree with Woodford's assessment of the strengths of this business. And, looking at analysts' forecasts for 2018, its first full year as a listed company, I think the valuation is attractive. The EPS consensus of 19p gives a P/E of 13.3. And with the board having a dividend policy of paying out 60% of earnings, we can look forward to a dividend of 11.4p, which gives a very nice yield of 4.5%. As such, this is another business I'd be happy to buy a slice of today.

Five top buys

Woodford's success has made him a millionaire many times over but a seven-figure-sum shares portfolio is within the reach of many ordinary investors. With this in mind, the Motley Fool's experts have scouted the market to identify the very best businesses with the ability to deliver top-notch returns through thick and thin.

They've identified five terrific prospects and you can read their analysis of the companies in question in this exclusive FREE report. The report comes with no obligation, so CLICK HERE now for your free copy.

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.

Read Full Story