Why WAM Research Limited (ASX:WAX) is getting more attractive as a dividend share

I think that WAM Research Limited (ASX: WAX) is one of the most attractive dividend shares on the ASX.

It’s a listed investment company (LIC) that is run by the high-performing Wilson Asset Management (WAM) team.

It focuses on small and medium sized businesses that the team view as growth opportunities where they can see a catalyst that will change the valuation.

This strategy has been very effective because over the past five years its portfolio has returned an average of 13.9% per annum before fees and expenses, outperforming the S&P/ASX All Ordinaries Accumulation Index by 7.7% per annum, not including franking credits.

WAM Research has used this excellent performance to pay a growing fully franked dividend, it has increased its dividend each year since the GFC.

However, October was a rough month with the WAM Research portfolio falling by 9%. WAM Research has increased its cash position to 38.2% of the portfolio, up from 21.1% in September, to weather any future volatility.

The reason why I think WAM Research is an even more attractive dividend option is because the LIC’s Board aims to increase the dividend steadily each year. This means that FY19’s dividend should be higher than FY18’s barring a catastrophe. That means that a falling share price should translate to a higher starting dividend yield.

WAM Research’s current grossed-up dividend yield is 9.3%, which is a very nice starting yield.

Foolish takeaway

However, the one thing holding me back from investing at the current price is that the current share price of $1.46 means it’s trading at a premium of around 25% to the pre-tax net tangible assets (NTA) per share at the end of October 2018.

I don’t think I’ll be buying shares of WAM Research until the grossed-up yield is 10% or higher or the premium reduces significantly. But I do prefer it to WAM Capital Limited (ASX: WAM).

Instead, another dividend stock I’ve got my eye on is 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 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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