Is the WAM Capital Limited (ASX: WAM) share price a buy for the 10% grossed-up dividend yield after reporting?
WAM Capital is the largest listed investment company (LIC) in the Wilson Asset Management stable, it's also the oldest. It targets small and medium sized ASX businesses where the investment team see a catalyst to improve the valuation.
According to the January 2019 NTA investment update, over the past 10 years the WAM Capital portfolio has outperformed the S&P/ASX All Ordinaries Accumulation Index by an average of 6.3% per annum, before fees and expenses. So, it's worth looking at what WAM Capital has done.
Chairman and CIO of WAM, Geoff Wilson, said that the WAM Capital investment portfolio decreased by 9.3% in the half-year to 31 December 2018, leading to a reduction of $132 million of assets and an operating loss after tax of $91.5 million.
The volatility in the period led to the declines, some of the detractors were Emeco Holdings Limited (ASX: EHL), Seven West Media Ltd (ASX: SWM) and Worleyparsons Limited (ASX: WOR).
During the period it acquired Wealth Defender Equities, another LIC, by issuing new shares at a premium to WAM Capital's pre-tax NTA, which added 1.1% to the NTA.
WAM Capital dividend
The all-important half-year dividend was maintained at 7.75 cents per share. WAM Capital now has a profit reserve of around a year, so it will need to generate good returns over the next 12 month to keep the dividend flowing.
Is WAM Capital a buy?
WAM Capital is trading at a 22% premium to its pre-tax NTA of $1.78 at the end of January 2019. With the NTA premium still high, the chance of Labor winning & reducing the effectiveness of franking credits, and WAM Capital's reducing profit reserve, I don't think now is the best time to buy its shares.
