MENU

How to own small-cap shares without sacrificing dividends

Most investors look at small-cap shares as offering higher growth opportunities. And in turn, they accept the lower dividends on offer in the hope that the growth makes up for it.

Smaller businesses may often be reinvesting heavily, and not have a strong enough market position to allow them the flexibility of paying shareholders a regular income.

But what if there was a way to have both? Be invested in small-cap shares, yet receive a strong level of income.

Well there is. By investing in listed investment companies (LICs) which focus on small-cap shares. Here’s a couple to consider for further research…

Naos Emerging Opportunities Company Ltd (ASX: NCC)

This Naos LIC has now been listed on the ASX for around 5 years.  The company holds a concentrated portfolio of stocks outside the top 100, with just 9 companies in the portfolio currently.

Since inception, the portfolio has outperformed the market comfortably before fees, and to a lesser extent after fees.

Naos has paid a solid level of income since listing and the dividend has been increased every year. This LIC carries greater risk than many others due to the concentrated nature of the portfolio, so it’s not one I’d put a massive amount into.

Shares currently trade on a grossed-up dividend yield of 8.4%.

Mirrabooka Investments Ltd (ASX: MIR)

This LIC is managed by the same folks that manage Australian Foundation Investment Co. Ltd (ASX: AFI).

Mirrabooka is internally managed and has a lower fee than Naos. It’s also been listed for much longer, since 2001.

It holds a large portfolio of small and mid-sized companies outside the top 50, which it expects to have solid growth over time. The LIC regularly pays out a strong level of income to shareholders, which mostly comes from realised capital gains within the portfolio.

Shares currently trade at an estimated 5% premium to NTA, and a grossed-up dividend yield of 6.4%.

Foolish takeaway

There we go – a couple of ways to get big dividend yields from small-cap shares, without the risk of a single one or two high-yielding shares. Of course the trade-off is, you’re unlikely to get massive growth from LICs like these because of this diversification, but decent growth combined with a fully franked dividend stream.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Dave Gow owns shares of Mirrabooka Investments 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.