2 top FTSE 100 dividend stocks I’d buy as Neil Woodford is forced to sell

It looks as if these two FTSE 100 (INDEXFTSE:UKX) income stocks are on sale right now.

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The decision by former star money manager Neil Woodford to stop redemptions from his flagship equity income fund earlier this week has rocked the City. And now, Woodford faces an uphill battle to restructure his fund and allow savers to withdraw their money before the situation becomes even worse.

To do this, Woodford and his team will have to sell off the fund’s liquid holdings, which includes what I believe are some of the best dividend stocks in the FTSE 100. In my opinion, this could be an excellent opportunity for income-seeking investors. As Woodford is forced to offload these at whatever price he can get, savvy income seekers could have the chance to snap up a bargain.

Cash mountain

One of Woodford’s top income stocks that he will have to sell is homebuilder Taylor Wimpey (LSE: TW). At the time of writing, shares in this company currently support a dividend yield of 11.6%, making it one of the highest yielding stocks in the FTSE 100.

Usually, when the dividend yield on stocks reaches 10% or more, it’s a strong sign that the market doesn’t believe the distribution is sustainable. However, Taylor already has enough cash on its balance sheet to fund the dividend in 2019. And with an order backlog of over 10,000 homes at the end of February (compared to total sales of 15,275 homes last year), it currently looks as if the business will generate enough cash to fund the dividend in 2020 as well.

Last year, Taylor’s cash pile expanded by more than 25% to £644m, even though it distributed just under £500m in dividends to shareholders. With demand for homes continuing to outpace supply, it looks as if the company can repeat this performance in 2019. Considering these figures, I believe the dividend is well funded for 2019 and beyond.

After taking all of the above into account, I reckon it is worth snapping up shares in this FTSE 100 income champion as Neil Woodford is forced to sell.

Surging profits

As well as Taylor, I reckon the UK’s largest homebuilder by sales, Barratt Development (LSE: BDEV), is also worth adding to your portfolio today.

Back at the beginning of February, Barratt reported a 19.1% increase in profits for the first half of its financial year, which puts the company firmly on track to report another record performance for fiscal 2018–2019. In its last financial year, the company reported record pre-tax profits of £835.5m. With profits rising to new highs, Barrett can afford to reward its shareholders handsomely this year.

City analysts believe the company will distribute total dividends of 44.1p in its current financial period, giving a dividend yield of 8%. Analysts have pencilled in a similar distribution for the following year. This includes management’s plans to return £175m of surplus cash this November  and in November 2020.

Once again, Barrett’s cash position tells me the company can easily afford these dividends. At the end of December 2018, the group reported cash on the balance sheet of £388m. And management believes the business will end its current financial year with net cash of £600m–£650m, more than enough to cover both the regular and special dividends.

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.

Rupert Hargreaves owns no share 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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