Originally, the nofollow attribute appeared in the page-level meta tag, and instructed search engines not to follow (i.e., crawl) any outgoing links on the page.
How Google says they handle nofollowed links
Google states that their engine takes nofollow literally and does not pass anchor text.
We don’t follow them. This means that Google does not transfer PageRank or anchor text across these links. Essentially, using nofollow causes us to drop the target links from our overall graph of the web. However, the target pages may still appear in our index if other sites link to them without using nofollow, or if the URLs are submitted to Google in a Sitemap. (source)
Matt Cutts continues this stance in a post on page sculpting stating that nofollow link did pass anchortext, normally due to bugs in indexing that we then fixed”.
[*] Nofollow links definitely don’t pass PageRank. Over the years, I’ve seen a few corner cases where a
nofollowlink did pass anchortext, normally due to bugs in indexing that we then fixed. The essential thing you need to know is that nofollow links don’t help sites rank higher in Google’s search results. (source)
Dave Naylor , a UK SEO, also maintains the same position in a post about 5 things that stop anchor text being passed.
Yep not rocket science but when was the last time you actually checked it in an SEO lab environment ? well with 99% certainty I can say that this
rel=”nofollow” href=”http://www.davidnaylor.co.uk”>Dave Naylor</a>
will not pass the “Dave Naylor” link text to the target page
Well, I can say with 99.9% certainty from my own test data that nofollow appears to indeed pass anchor text.

As you can see from the Google results displayed above it appears that the anchor text is being passed through 2 robots.txt nofollow and 1 meta nofollow to Dave’s site. (sorry Dave – I needed an example).
My conclusion is the anchor text is passed through a nofollow link in both Google and Yahoo.
What do you think? Is the anchor text being passed or not?
Resources used for link analysis:
SEO Elite
Google
Yahoo





