It’s getting increasingly difficult to find reliable dividend payers that pay a decent yield but also offer relative safety.
One major contributor to this conundrum is that many of the major dividend payers have reached maturity and are now slow-growth businesses. They’re now large targets for smaller competitors and are at risk of having their profit margins reduced.
The best way for Australians to combat this may be to invest in shares that invest in other shares and pay out a majority of their gains out as dividends. Those investment shares are called listed investment companies (LICs). Here are three good options:
WAM Leaders Ltd (ASX: WLE)
WAM Leaders is a LIC run by the high-performing Wilson Asset Management team. WAM Leaders is the LIC that focuses on the large end of the Australian share market.
Over the past year to the end of April, the WAM Leaders portfolio has grown by 14% before fees, compared to the S&P/ASX 200 Accumulation Index which had grown by 5.5%. This is an impressive outperformance.
The WAM Leaders portfolio has outperformed its benchmark every month this financial year. If it pays the same 2.5 cents per share dividend later this year, it’s trading on a grossed-up yield of 6.3%.
NAOS Absolute Opportunities Co Ltd (ASX: NAC)
This company is run by Naos Asset Management. This particular LIC looks at industrial companies with market capitalisations between $400 million and $1 billion.
I like the Naos way of doing things because they run very concentrated portfolios. This can lead to outperformance over the long-term if the investment team selects shares correctly. Over the past three years the portfolio has returned an average of 16.26% per annum before fees.
If the LIC repeats its half-year dividend amount of 2.75 cents per share again, it’s currently trading on a grossed-up dividend yield of 7.9%.
Clime Capital Limited (ASX: CAM)
Clime is a LIC that aims to give shareholders exposure to a wide variety of shares in the large cap, medium cap, small cap ASX worlds and the international share market.
Returns aren’t guaranteed of course, but I like the shares it’s picking as major holdings including Ramsay Health Care Limited (ASX: RHC), Credit Corp Group Limited (ASX: CCP), Collins Foods Ltd (ASX: CKF) and Alphabet Inc (Google).
It is steadily increasing its dividend and currently has a grossed-up yield of 8.4%.
I like all three LICs and I’d much rather own one of them than most of the top ASX20 businesses. At the current prices I’d probably go for the Naos one because it’s trading at a bigger discount to the NTA, but WAM Leaders would also make a good long-term choice for income.
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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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.