Why you should own this dividend share instead of Commonwealth Bank of Australia (ASX:CBA)

I believe that WAM Capital Limited (ASX: WAM) is a superior dividend share idea compared to Commonwealth Bank of Australia (ASX: CBA).

WAM Capital is a leading listed investment company (LIC), whilst Commonwealth Bank is the largest business in Australia and one of the most widely held shares. At the end of October 2018, WAM Capital had almost $1.4 billion of assets, so it’s one of the largest players in the LIC space.

Here are some of the reasons why I think WAM Capital is a better dividend share than Commonwealth Bank:

Dividend yield

The first key comparison to make between the two is the dividend yield.

Commonwealth Bank currently offers a trailing grossed-up dividend yield of 9%. This compares to WAM Capital’s grossed-up dividend yield of 9.7%.

Whilst both shares offer a very big yield, WAM Capital wins by an extra 0.7%.

Dividend growth

Both businesses have increased their dividend payouts significantly since the depths of the GFC. However, it’s recent history that matters most.

During 2015 Commonwealth Bank paid dividends of $4.20 per share and this year it paid $4.31 per share – growth of only 2.6%. This doesn’t even cover the effects of inflation.

In 2015 WAM Capital paid dividends of $0.14 per share and this year it paid $0.155 per share, which is growth of 10.7%.

WAM Capital’s dividend growth isn’t huge, but it’s much better than Commonwealth Bank’s.

Capital growth

Dividends are nice but I also like my shares to display the ability to create long-term capital growth too.

Five years ago Commonwealth Bank shares were trading $77.47 and currently the price is $68.17, a drop of 12%.

WAM Capital’s share price was $1.86 and now it’s $2.30, a decent rise of 23.7%.

Future growth

No-one can know for certain what investment returns will be delivered in the future by WAM Capital and Commonwealth Bank.

However, with the Royal Commission and falling housing market hindering Commonwealth Bank I doubt it’s a good place for your money at the moment.

The WAM Capital investment team has proven they can beat the S&P/ASX All Ordinaries Accumulation Index over the long-term. Over the past five years it has outperformed the index by an average of 5.7% per annum, before fees and taxes.

Foolish takeaway

For all of the above reasons, I think WAM Capital is much better dividend pick than Commonwealth Bank at the current prices.

The only reason I’m not buying shares at the current level is that it’s trading at a hefty 20% premium to the underlying pre-tax net tangible assets (NTA) per share at the end of October 2018. I’d like to buy shares at a much closer level to NTA.

If you’re after income then this top dividend stock could be what you’re after, it’s trading at an attractive price and just grew its dividend by 20%.

This defensive growth stock just keeps increasing its dividend year after year

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!

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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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