Is the Naos Emerging Opportunities Company Ltd share price a buy for its 7.8% yield?

The Naos Emerging Opportunities Company Ltd (ASX: NCC) share price is down 12% since the $1.50 high at the start of the year.

Naos Emerging Opportunities Company is a listed investment company (LIC) run by NAOS Asset Management. It isn’t one of the oldest or biggest LICs on the ASX but it has one of the most impressive records in my opinion.

The LIC aims to give exposure to undervalued emerging companies with an industrial focus. This means the companies it looks at generally have market capitalisations under $250 million.

It is completely index unaware, it doesn’t need to take large weightings to companies it doesn’t think have good prospects.

Over the past five years the LIC’s portfolio has returned an average of 17.87% per annum before fees over the past five years and 13.66% per annum before fees over the past three years. This performance soundly beats the market’s return and its benchmark.

I like that the Naos staff have significant alignment of interests with shareholders because they themselves own over 10 million shares. Indeed, it was the fact that directors recently bought shares that prompted me to write this article. Warwick Evans acquired 22,880 shares, Sebastian Evans acquired 8,227 shares and David Rickards acquired 17,984 shares.

This Naos LIC has an excellent track record of increasing its dividend each year and it also has a solid profit reserve too. It has increased its dividend each year since it started paying one in the second half of the 2013 financial year. In its recent half-year result it increased the dividend by just over 7%.

Foolish takeaway

Naos currently has a trailing grossed-up dividend yield of 7.82%. I think this Naos LIC is a really good option for income investors and also for people who want a combination of dividend and capital growth returns. I’d be happy to add shares at the current price along with the directors who bought shares.

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Motley Fool contributor Tristan Harrison owns shares of NAOS EMERG FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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