The WAM Capital Limited (ASX: WAM) share price is offering a grossed-up dividend yield of 10%, is it a buy?
WAM Capital is the flagship listed investment company (LIC) that is run by Wilson Asset Management.
One of the main things to consider when looking at any LIC is the returns. Although past performance is not a guarantee of future performance, long-term returns show skill that is likely to be repeated. An excellent sports player with years of good performance is not likely to suddenly become terrible for the rest of their career.
WAM Capital's portfolio has delivered an average return per annum of 16.7% over the past decade before fees and expenses, outperforming the S&P/ASX All Ordinaries Accumulation Index by an average of 7.5% per annum.
During November 2018, WAM Capital's gross portfolio return outperformed the index by 0.5%.
One of the most reassuring things about the WAM Capital portfolio is that it holds a lot of cash in its portfolio for downside protection and opportunities. At the end of November 2018 it had 34.7% of the portfolio as cash.
WAM Capital has used the impressive long-term performance to pay out a very large, growing dividend. It has increased the dividend every year since the GFC and currently offers a grossed-up dividend yield of 10%.
Foolish takeaway
However, it is currently trading at a 22% premium to the pre-tax NTA at the end of November 2018. The dividend yield is very attractive but the premium still puts me off and the low dividend reserve could be a problem if the share market keeps falling. WAM Capital is the best of the 20th century LICs in my opinion, but I'm holding out for a better price.
