2 Neil Woodford dividend stocks I’d buy today

Shares of outsourcing group Capita (LSE: CPI) rose by 12% this morning, after the company said trading so far this year was in line with expectations and that good progress was being made with its turnaround plans.

The company says that its win rate for new business has improved to “1-in-2 by value”. Capita is currently in exclusive discussions with British Airways over a possible deal to take over the airline’s global customer contract operations, which handle 9.5m calls per year.

Progress is also being made with the other element required for a successful turnaround — a new chief executive. A “shortlist of strong candidates” is in place and the selection process is underway.

However, the company isn’t out of the woods yet. The sale of Capita Asset Services — which is needed to help reduce debt levels — is still ongoing. This deal is expected to conclude during the second half of this year. New business wins are also expected to be weighted towards the second half of the year.

Although progress so far has been good, it’s the next six months that will dictate how successful 2017 will be for this company.

I’d buy

Neil Woodford’s income funds collectively own 10.8% of Capita stock, making Woodford Funds the firm’s second-largest shareholder. Back in March, Mr Woodford said he thought the share price at the time (about 570p) “profoundly” undervalued the “long-term attractions of the business”. The market appears to be coming round to his view, and it’s easy to see why.

Based on the latest broker consensus forecasts, these shares now trade on a forecast P/E of 11.5, with a prospective yield of 5%. Given the progress made so far, I believe the current price is a tempting entry point for a long-term holding.

Real diversification

Diversifying your portfolio isn’t always as easy as it sounds. Companies which appear different are often exposed to the same economic forces. One way of diversifying that can work well is to invest in foreign stocks.

Sirius Real Estate (LSE: SRE) operates business parks in Germany, providing investors with exposure to one of Europe’s strongest economies. Conveniently for us, it’s listed on the London Stock Exchange, meaning that you can invest without the complexity or cost of buying overseas-listed shares.

This stock is a holding in both of Woodford Funds’ income portfolios and is also a share I own myself. The shares have risen by 28% so far this year, and aren’t as cheap as they were. But Sirius’s most recent trading statement advised investors that “Germany has proved to be a resilient investment and occupier market”, despite political change in Europe.

Occupancy of the group’s estate rose from 80% to 81% during the first quarter, and the group sold €103m of assets “at values materially above book value” as part of a plan to recycle cash into new opportunities.

Sirius shares currently trade on a price-to-book value of 1.3, with a 20117/18 forecast P/E of 14.6. That’s not especially cheap, but the group does offer a covered dividend yield of 4.7%, and seems to have decent momentum and long-term growth potential. I’d still be happy to buy at current levels.

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More reading

Roland Head owns shares of Sirius Real Estate. 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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