3 reasons why Neil Woodford is a successful investor

Here’s how Neil Woodford has enjoyed relatively consistent investment success

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While Warren Buffett is arguably the most famous investor in the US, in the UK that title probably belongs to Neil Woodford. Both investors have delivered excellent returns over a long period. In Neil Woodford’s case, he has focused on high dividend paying stocks in tobacco and healthcare, while also investing for the long term. Here’s why that strategy has made him a successful investor.

Long term

For any investment to come good, it takes time. Although communications are faster today than they were in previous years, and buying and selling shares can be done within seconds, the reality is that the business world moves at a much slower pace. New ideas and new strategies take time to be decided upon by senior management and then take even more time to filter through the company and have an impact on sales and profitability.

Investors such as Neil Woodford therefore invest for multi-year periods. This means that a company which is perceived as good value for money has time to gradually come good, whether that be because of increasing investor interest or improved financial performance. Investing for the long term also keeps trading costs down, which enhances total returns.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Dividend focus

Neil Woodford is known to favour companies that pay high dividends. This is another reason why he has been successful. Various studies have shown that the majority of investment returns over a long period come from dividends rather than from capital gains. This means that income returns are worth taking very seriously.

As well as providing an income return, dividends also provide guidance as to the financial health of a company. If that company is performing well, and its management has confidence in its outlook, then it is reasonable to assume that dividends will be high. Similarly, a high dividend could mean that a company’s balance sheet and cash flow outlook is positive. This would indicate that the company’s risk profile is lower and may mean that its overall risk/return profile is more appealing.

Sector focus

Neil Woodford has favoured tobacco and healthcare stocks in his investment career. In an interview, he stated that he wished he’d bought even more of them, such has been their stunning returns over the years.

Looking ahead, those very same sectors have the scope to continue their excellent performance. In the case of healthcare, the world faces a rapidly rising population over the long term as well as the effects of an ageing population. This means that demand for healthcare products and services is likely to rise in future – possibly at a faster rate than it has done in the past. Similarly, a rising population means that even though consumers are becoming increasingly health conscious, the number of smokers across the world is likely to rise.

Tobacco and healthcare stocks therefore still have huge appeal. Alongside a focus on dividends and a long term view, investing in them has helped Neil Woodford to become one of the best known and most successful investors around.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

British Pennies on a Pound Note
Investing Articles

Up 900%, could penny share Kodal Minerals have further to run?

Over five years, this penny share has increased in value by a factor of 10. Could the latest news persuade…

Read more »

Investing Articles

3 world-class stocks to consider buying, while they’re ‘on sale’

Looking for stocks to buy? These three all have attractive long-term prospects and are currently trading 20% or more below…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Could BP’s share price rebound over the next 12 months? These analysts think the answer is ‘yes’!

BPs share price has plummeted over the last year. But City brokers think things are about to turn around, as…

Read more »

Investing Articles

Is this an unmissable opportunity to buy Nvidia stock?

Nvidia stock is down 33% from its peak, driven by tariffs and geopolitical pressures. Despite this, some investors may spy…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s my Stocks and Shares ISA plan for 2025-26

A Stocks and Shares ISA helps investors avoid taxes on dividends and capital gains. And Stephen Wright has a plan…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »