The WAM Capital Limited (ASX: WAM) share price has grown by 53% over the last five years and I think it has a very good future ahead of it.
WAM Capital is the largest listed investment company (LIC) run by Wilson Asset Management.
Here are three reasons why I think you should own WAM Capital as part of your portfolio:
Outperformance
Geoff Wilson and his investment team are highly incentivised to outperform the market. The team have outperformed the market by some distance for multiple years.
WAM Capital's portfolio benchmark is the S&P/ASX All Ordinaries Accumulation Index. Over the last five years the WAM Capital portfolio's average return per annum was 17.9% and over the last three years was 15.9% (before fees and taxes). The benchmark returns were 11.6% and 6.8% respectively over the same time periods.
The team focus on smaller growth businesses which have a good chance of outperforming the market. They try to identify the growth stocks where a 'catalyst' could accelerate returns.
I am happy to pay for strong outperformance to this level over the long-term.
High levels of cash
It is common knowledge that over the long-term cash has been one of the lowest performing asset classes. However, the WAM Capital portfolio often keeps high levels of cash on hand at all times.
This helps returns in two ways. Cash protects against any market crashes, in-fact one of WAM Capital's main objectives is to preserve capital.
Having high levels of cash also provides ample ammunition to purchase any beaten down stocks, or indeed the whole market.
It is very common for at least 35% of the WAM Capital portfolio to be cash.
Big, growing dividends
WAM Capital pays out a lot of the profit it makes as a dividend to shareholders. The dividend gets progressively larger as the business gets bigger and the retained profits compound.
WAM Capital has grown its dividend every year since the GFC. In its annual result to 30 June 2017 it revealed that the full-year dividend payment will increase by 3.4%. This means WAM Capital is currently trading with a grossed-up dividend yield of 8.68%.
Foolish takeaway
I think WAM Capital is one of the best LICs on the ASX, alongside WAM Research Limited (ASX: WAX).
I don't think WAM Capital is a buy at today's price if you're an investor willing to wait a few months. The share price often drops after the dividend payment has been made.
However, I think WAM Capital would still be a market-beating performer if an investor were to buy today.
