The Motley Fool

This LIC now offers a large 7.4% yield

NAOS Ex-50 Opportunities Company Ltd (ASX: NAC) is a listed investment company (LIC) that focuses on larger Australian businesses outside of the top 50.

The LIC reported a headline net profit figure of $3.9 million for FY18, which was a 259% increase compared to FY17.

Its portfolio produced a 10.25% performance post all operating expenses, but before fees, in FY18. Since inception its portfolio has returned an average of 15.21% per annum post all operating expenses, but before fees, which is a solid return.

The total year dividend increased by 5% to 5.25 cents, fully franked. This means it currently offers a grossed-up dividend yield of 7.4%. Total shareholder returns (TSR) for the LIC for the year was a negative 2.9% due to the increased discount to the LIC’s pre-tax NTA.

During the year it changed its name to better reflect the mid-cap investment strategy. The LIC is also changing it benchmark from the RBA cash rate plus 250 basis point to the S&P/ASX 300 Industrials Accumulation Index, which is a more appropriate benchmark.

Pleasingly for retirees, the LIC is increasing its dividend frequency to every quarter which means it now offers a more frequent income stream.

Two of the best performers for the portfolio were Elders Ltd (ASX: ELD) and MNF Group Ltd (ASX: MNF).

Naos likes to run a concentrated portfolio of around 10 to 15 positions, which can lead to significant underperformance or outperformance in any given year. However, over the longer-term it can lead to strong returns if stock selection is done well.

Foolish takeaway

NAOS Ex-50 Opportunities Company is currently trading at a 9% discount to the pre-tax NTA at the end of July 2018, which is a pretty attractive discount. Whilst it isn’t my favourite Naos LIC, I do think it can have a place for retiree portfolios and income-seekers.

An even better dividend choice could be this top income stock which just grew its dividend by 20%.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended Elders 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.

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