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WAM Leaders Ltd (ASX:WLE) just increased its dividend by 66.7%, is it a buy?


WAM Leaders Ltd (ASX: WLE) just announced a 66.7% increase to its dividend, which is a large increase.

There are few fund managers in Australia that have a better investment record than Wilson Asset Management. Not only are the listed investment companies (LICs) some of the strongest performers since inception, but they are also strong year to year.

There are also few LICs in Australia that have remotely close as good of a dividend increase streak history as WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX). Those streaks are around a decade long and go back to the GFC.

WAM Leaders could be starting its own streak after increasing its annual dividend by 66.7% compared to last year. The annual dividends now amount to 5 cents per share, which means it has a grossed-up dividend yield of 6.2%.

Any share can be a trap if you’re just investing for the yield. A dividend must be supported by the strength of the underlying business. As I stated before, Wilson Asset Management produce good results most years and this year was no different for WAM Leaders.

WAM Leaders’ investment portfolio increased by 17.8%, before fees, during the financial year compared to a return of 4.8% for the S&P/ASX 200 Accumulation Index. The return may not be as strong in the next financial year, but there’s a good chance that WAM Leaders will continue outperforming the index.

The strong performance is a bit more impressive when you consider that WAM Leaders holds more cash than most other LICs that invest in large caps. Cash is usually a drag on performance unless the market falls.

Is WAM Leaders currently a buy?

LICs aren’t automatically ‘buys’ all the time. WAM Leaders and WAM Research trade at significant premiums to their pre-tax net tangible assets (NTA) per share.

However, WAM Leaders finished trading last Friday at a 5.7% discount to the estimated NTA at 30 June 2018 of $1.22 per share according to WAM. At this share price I think WAM Leaders is definitely considering worth buying. Strong performances usually come with a premium attached, not a discount.

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Returns As of 6th October 2020

Motley Fool contributor Tristan Harrison owns shares of WAM Research Limited. 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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