MENU

Is this share’s 9% yield too big to ignore?

Credit: Simon Cunningham

There are few shares on the ASX that have a larger dividend yield than WAM Capital Limited’s (ASX: WAM) grossed-up yield of 9%.

WAM Capital is a listed investment company (LIC) that has been operating since 1999. It was set up by illustrious investor Geoff Wilson and is operated by the high-performing Wilson Asset Management.

Since inception in August 1999 its portfolio’s gross performance has been an average of 17.5% per annum before fees and expenses. That equates to outperforming the S&P/ASX All Ordinaries Accumulation Index by 9% per annum.

Whether you look at the past year, three years, five years or 10 years its average gross performance has returned at least 14.5% per year. It manages to achieve good returns by focusing on small caps or mid-caps that are seen as undervalued growth companies.

It could also be described as somewhat defensive because of its large cash position. It tends to keep at least 25% of the portfolio as cash. This is good for protection and also provides ammunition for opportunities.

Unless the WAM Capital investment team can see a catalyst that will boost the valuation of a share the team are happy to sit in cash.

One of the best things about WAM Capital is that it aims to steadily increase the dividend for shareholders. It has increased its dividend every year since the GFC and may be able to keep doing so for the foreseeable future unless there is another major recession.

Foolish takeaway

It’s currently trading at a 19% premium to the pre-tax NTA at the end of September 2018. However, the recent fall in the share market could mean it’s trading at an even bigger premium.

For now, I’d wait until WAM Capital is trading at a better premium before taking the plunge. However, income-seekers would still be getting a 9% dividend yield if they bought today.

If you’re looking for income it might be better to buy this top share which just increased its dividend by 20%!

The best dividend stock to buy today

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.