There aren’t many listed investment companies (LICs) on the ASX with grossed-up dividend yields above 9%.
The LIC structure is very useful for shareholders because it allows the LIC to invest in other ASX shares and turn the gains from both capital growth and dividends received into a growing dividend.
If you’re after huge dividends then these two LICs could be options:
NAOS Small Cap Opportunities Company Ltd (ASX: NSC)
This is a LIC run by Naos, which aims to pay investors a sustainable growing stream of fully franked dividends. It has been successful with this goal with its other two LICs.
The LIC looks to invest in smaller businesses on the ASX for the long-term. But, it only goes for shares it has high-conviction in. At the end of December 2018 it had 10 long positions.
At the end of December 2018 it was trading at a 10% discount to its net tangible assets (NTA) and is currently paying a quarterly 1.35 cents dividend, meaning the projected grossed-up dividend yield is 11.5%.
WAM Research Limited (ASX: WAX)
WAM Research is one of the high-performing LICs managed by Wilson Asset Management. It also looks to pay investors a growing fully franked dividend. It has increased its dividend every year since the GFC and it currently has a grossed-up yield of 9.1%.
It invests in the small and medium businesses on the ASX where the investment team can see a catalyst that will increase the valuation, otherwise they are happy to sit in cash. The cash weighting was 42% at the end of November 2018.
WAM Research has significantly outperformed the ASX index over the past few years, so if it manages to keep generating good investment returns then the dividend can keep growing.
Both of these LICs have impressive projected yields, but the dividend is only as good as the returns. At the current prices I’m more attracted to the Naos LIC because of the discount and higher yield, but WAM Research may be a safer option for its high cash levels. But, WAM Research is still trading at a large premium to its underlying assets, so it’s not exactly a bargain today.