This LIC has a huge 8.5% dividend yield

NAOS Ex-50 Opportunities Company Ltd (ASX: NAC) has a huge grossed-up dividend yield of 8.5%. Is it worth buying?

It’s a listed investment company (LIC) that aims to invest in mid-cap shares that are outside of the ASX 50, generally with market capitalisations of between $400 million to more than $1 billion.

Some of the biggest shares on the ASX are definitely not the best to own for growth, like Australia and New Zealand Banking Group (ASX: ANZ) and Telstra Corporation Ltd (ASX: TLS).

I really like some of its holdings including Reece Ltd (ASX: REH) and MNF Group Ltd (ASX: MNF). These are quality businesses with long-term prospects and international growth potential.

Naos likes to hold a smaller number of high-conviction ideas. Why hold your 40th best idea? At the end of October 2018, it had 13 long positions. I like that the holdings completely ignore the index.

Since inception in November 2014 its portfolio has returned an average of 12.07% before fees but after expenses, it has outperformed the S&P/ASX 300 Industrials Accumulation Index by an average of 6% per year in this time.

The dividend has increased every year since FY15, it’s nice to receive a growing stream of dividends in this era of low interest rates, particularly with a grossed-up dividend yield of 8.5%. As long as Naos can continue to generate double-digit long-term returns then the dividend should be able to keep growing.

Foolish takeaway

At the end of last month it had a pre-tax NTA of around $1 and the shares are currently trading at $0.91, so it’s likely trading at a decent discount to its underlying value.

However, with a higher management fee than its sibling Naos LICs, I would prefer to invest in Naos Emerging Opportunities Company Ltd (ASX: NCC) or NAOS Small Cap Opportunities Company Ltd (ASX: NSC) at the current prices.

If your goal is income then these top shares could generate the dividends that you want from your portfolio.

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Motley Fool contributor Tristan Harrison owns shares of NAO SMLCAP FPO. The Motley Fool Australia owns shares of and has recommended MNF Group Limited and Telstra 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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