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WAM Microcap Limited (ASX:WMI) declares special dividend, creates 31% returns

WAM Microcap Limited (ASX: WMI) is the listed investment company (LIC) in the Wilson Asset Management (WAM) stable that focuses on the smallest businesses on the ASX.

Earlier today, WAM Microcap revealed a maiden operating profit before tax of $42.4 million.

WAM Microcap finished its first annual result by paying 4 cents per share of ordinary dividends for FY18, it also declared a special dividend of 2 cents per share.

The gross WAM Microcap portfolio return was 31.2% before fees and expenses, beating the S&P/ASX Small Ordinaries Accumulation Index by 7%. This strong performance was created despite holding an average of 19.6% of the portfolio in cash. I think this was a really impressive result.

The before-tax NTA increased by 27.2% during FY18, including the 2 cents per share of dividends paid to shareholders. The NTA increase includes the 0.7% paid for corporate tax, 1.3% of management fees and other items. The management fee represents 1% of average funds under management (FUM) from commencement of operations from 20 June 2017 to 30 June 2018.

WAM Microcap’s total shareholder return was 31.4%, which was driven by the portfolio performance and an increase in the premium to the NTA. This doesn’t include the potential benefit of franking credits.

Three of the LIC’s best performing holdings were Emeco Holdings Limited (ASX: EHL), Specialty Fashion Group Ltd (ASX: SFH) and Integral Diagnostics Ltd (ASX: IDX).

At 30 June 2018, WAM Microcap’s three largest holdings were Specialty Fashion, Generation Development Group Ltd (ASX: GDG) and Emeco.

The WAM Microcap team remain cautious with the rise in global interest rates, coupled with the potential of trade wars. Although global economic growth continues, WAM believes volatility will increase and that we are near the end of the second-longest bull market in US history. WAM Microcap started FY19 with 18.4% of the portfolio in cash.

Foolish takeaway

Excluding the special dividend, WAM Microcap currently has a grossed-up dividend yield of 4%. I think many investors don’t have enough exposure to the small cap region of the market, which over the long-term is likely to produce the biggest returns due to the undiscovered names and potential growth of the shares that are in the microcap sector.

In some years small caps may be far more volatile but over a decade it could produce the biggest total shareholder return. I’d be happy to buy some shares of WAM Microcap at the current price and accumulate more over time.

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Motley Fool contributor Tristan Harrison owns shares of WAM MICRO 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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