There a number of different ways to judge what’s the best dividend share. Some people focus on just the yield, some look at the safety of the dividend and some look at how many years the dividend has been increased in a row.
WAM Research Limited (ASX: WAX) has a big claim to being the best dividend share on the ASX for a number of reasons.
As an introduction, WAM Research is a listed investment company (LIC) that is run by the high-performing Wilson Asset Management team.
The purpose of a LIC is to invest in other shares on behalf of shareholders and hopefully beat the benchmark over the long-term.
WAM Research has done an excellent job of beating its benchmark over the last five years, the WAM Research portfolio has returned an average of 17.7% per annum before fees compared to the S&P/ASX All Ordinaries Accumulation Index which has returned an average of 9.7% per annum over the same time period.
It has managed to create this outperformance by focusing on smaller undervalued growth companies that are usually industrial in nature. It focuses purely on the quality of the underlying business rather than trying to identify any obvious discounts to NTA.
WAM Research has increased its dividend each year since the GFC, meaning it is getting close to a decade of increases. It’s not just the streak that’s impressive but the size of the increases. In FY09 it paid 4 cents of dividends and in FY18 it’s likely to reveal a dividend of 9.5 cents, more than doubling the income paid in a decade.
You may think this level of outperformance could only have been delivered if the portfolio was fully invested, however WAM Research has had cash levels above 30% for a lot of the time. Even now it has fallen to 22%, which is still high by most LIC standards. The cash is good for downside protection and for opportunities.
WAM Research currently has a grossed-up dividend yield of 8.3%. Some people may point to the fees and the significant premium to NTA as being downsides. I agree, they are, I wouldn’t personally buy today.
However, on a pure income basis I don’t think there are many shares on the ASX that could produce as much dividend income as WAM Research over the next three years, which is perhaps the best judge of dividend shares over the long run – which one produces the most sustainable income.
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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.