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.
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.
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.