Here's what the dividend expert has been purchasing.
It's always useful to see which shares the experts are buying, especially in times as uncertain as these.
Neil Woodford, as I've mentioned before, is as expert as they come. Through his Invesco Perpetual Income and High Income Funds, he looks after an enormous £20 billion of client money and has generated a superb 327% return during the last 15 years. The wider market, with dividends reinvested, has returned about 44% during the same time.
Clearly, Mr Woodford knows a thing or two about what shares to buy and when, which is why the Fool has published this exclusive report on his market-thumping track record and the holdings he thinks can power his returns to further gains.
So what has Mr Woodford been buying of late? Well, the latest annual report for his £11 billion High Income Fund has just been published and the document reveals the investments he made throughout 2011 -- a year when the market returned -3.5% following the eurozone troubles. In contrast, Mr Woodford's trades helped his High Income Fund register a 9%% gain during the slump.
High Income fund purchases
I highlighted some of Mr Woodford's recent trades back in November. In particular, Mr Woodford liked the look of BAE Systems (LSE: BA) at 302p, Reckitt Benckiser (LSE: RB) at about £33 and Centrica (LSE: CNA) at 320p during the market's summer slump. True to form, Mr Woodford's latest report highlights further buying of this trio.
For BAE, I reckon he bought more at 267p during the second half of last year, which looks a decent trade with the price now at 315p. My sums also suggest Mr Woodford acquired more Centrica shares at 299p, which have since rallied to 317p. I've also deduced he purchased a few more Reckitt shares at about £33, which have since climbed beyond £35. All told, BAE, Reckitt and Centrica were Mr Woodford's three largest share purchases of 2011.
But perhaps more of interest to you is Mr Woodford's latest buying ideas -- the new shares he's introduced to his portfolios, or those shares where he's increased his stake significantly. So I've delved into the 2011 Invesco Perpetual High Income report and pinpointed these three ideas:
1. Mr Woodford established a new position in Smith & Nephew (LSE: SN) during the second half of 2011. I calculate he paid an average 564p a share, which compares favourably to the current price of 629p. Looking back, it seems Mr Woodford took advantage of the market's disliking to S&N's third-quarter results, when the medical-devices group owned up to rising costs within its orthopaedics division.
I must admit S&N is not a typical dividend stock, with a trailing income of about 11p per share and sub-2% yield. I can only presume Mr Woodford expects S&N to capitalise on an ageing population and the firm reinvesting its profits for further growth, which should then translate into greater dividends in the years to come.
2. Another of Mr Woodford's new holdings is Sanofi (NYSE: SNY.US), the French pharmaceutical group with a speciality for diabetes and oncology products. I suppose this purchase was not a surprise, given Mr Woodford's liking for the healthcare sector -- his funds are already loaded with AstraZeneca (LSE: AZN), GlaxoSmithKline (LSE: GSK) and Roche.
I estimate Mr Woodford paid about €54 a share for Sanofi, which equates to a price-to-earnings ratio of 8 and yield of 4.9% based on the group's subsequent annual results. These ratings appear in line with his traditional investments, and provide scope for growth if Sanofi's profits regain their momentum.
3. Among Mr Woodford's top-ups, his purchase of Serco (LSE: SRP) was among the most prominent. Similar to S&N I suppose, this trade emphasises Mr Woodford's liking for growth companies and the possibility of receiving a superior future income from rapidly increasing profits. Despite the recession, the outsourcer's earnings have more than doubled in the last five years, and advanced by 12% during 2011.
At present, Serco offers a trailing yield of 1.6% at 537p. My sums say Mr Woodford paid 508p during the second half of last year, following a very small purchase at 577p during the first half. (Interestingly, Mr Woodford was also a buyer of fellow outsourcer Capita (LSE: CPI) during 2011.)
The expert's outlook
I must admit none of these buys is going to have a substantial influence on Mr Woodford's High Income fund in the near term. Of the shares I've mentioned, BAE Systems had the largest weighting at 3.6% and Serco had the lowest at 0.4% as at the portfolio's December year-end. However, Mr Woodford is not known for speculating on random punts and I hope keeping tabs on his purchases has thrown up some beneficial ideas for you to research further.
Something to bear in mind, however, is Mr Woodford has mixed views on the market right now. Here's an extract from his latest investment report:
"The increasingly tough economic outlook is not a surprise to us. In our opinion, the eurozone is on the verge of a renewed recession and there are downside risks to forecasts for UK economic growth... As the economic environment remains challenging, we expect this to be manifested in lower earnings and profit warnings from some companies.
However, there are also certain types of companies that can thrive in this environment, delivering sustainable dividends and earnings growth, and the fund is invested accordingly. It is encouraging that our view of a year ago, that the valuation of these companies was too low, has started to be recognised, but we believe that the fundamentals have yet to fully assert themselves."
Just to remind you, the major shares Mr Woodford is currently backing -- and that have started to "reassert themselves" -- are documented fully in this exclusive Motley Fool report. If the market does suffer another setback, knowing which companies this investment expert favours strongly could prove vital!
More on the markets, shares and Neil Woodford:
> The Motley Fool owns shares in AstraZeneca, GlaxoSmithKline, Reckitt Benckiser and Smith & Nephew.