2 proven LICs with massive fully franked dividends: should you buy?

I’m a big fan of listed investment companies. It’s an easy way to buy a diversified portfolio of shares in one basket.

There’s a huge number of LICs available on the market now – far too many to keep up with – many with different strategies. If you’re looking for a high-income today, here are 2 high yield LICs you might want to consider.

Platinum Capital Limited (ASX: PMC)

This is an international focused LIC, managed by Platinum Asset Management Limited (ASX: PTM). It’s been running since 1994 and has had market-beating performance over its 24-year history. Platinum Capital has had a return (after fees) of 12% per annum over that time, compared to the MSCI World Index return of 6.9% per annum, both including dividends.

The portfolio is currently heavily weighted towards Asia which has caused underperformance in recent years. Despite this, the company is sticking to its guns and sees many companies in this area with strong prospects and believe they’re currently undervalued.

Shares trade at a premium to NTA of over 10%. The current dividend yield is 8%, including franking credits.

WAM Capital Limited (ASX: WAM)

WAM is an ever-popular choice with retail investors who are looking for income. This LIC focuses on buying small and mid-sized companies which look undervalued and WAM believes will soon be re-rated higher by the market.

The unusual thing is WAM tends to hold a lot of cash, even more so when the market is going through periods of volatility. Currently, the portfolio is 35% cash. It’s a strategy that works for the company, with returns before fees since 1999, of 16.9% per annum. That compares to the All Ords Accumulation Index return of 8% per annum.

WAM’s focus is paying out large and growing dividends from gains realised in the portfolio. Shares are trading at a premium to NTA of around 20%. The current dividend yield is 9.9%, including franking credits.

Foolish takeaway

Both LICs are trading at premiums currently. This tells me that investors buying these shares are more focused on the dividend income than the NTA value of the company. Both are quality LICs that are well managed and have proven themselves over time, but I wouldn’t pay the large premium they’re trading at today.

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Motley Fool contributor Dave Gow owns shares of WAM Capital Limited. The Motley Fool Australia owns shares of Platinum Investment Management 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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