Is the WAM Research Limited (ASX: WAX) share price a buy for the grossed-up dividend yield of 11%?
WAM Research is a listed investment company (LIC) operated by Wilson Asset Management.
It’s the highest dividend yield that WAM Research has traded at for some time, largely because the premium to the underlying net tangible assets (NTA) has significantly narrowed in recent months.
Using the March 2019 pre-tax NTA of $1.16, the current share price of $1.25 means it’s now trading at a premium of ‘only’ 7.8%. For much of the past year or two it has been trading with a premium of more than 20%, sometimes around 25%.
There are two probable causes of the premium closing up. The first is investor worry surrounding the potential change to franking credits, which would reduce the attractiveness of high-yield dividend shares like WAM Research.
The other is that WAM Research’s investment portfolio performance has been pretty disappointing over the past year, underperforming the S&P/ASX All Ordinaries Accumulation Index by 11.7%.
However, the dividend potential of WAM Research still remains. It still has a sizeable profit reserve to continue to pay dividends unless there’s a large market crash. It continues to hold a good amount of cash for protection and opportunities, being 23.9% of the portfolio at 31 March 2019. It continues to target a growing dividend for shareholders.
Performance can swing year to year, so although it has underperformed the market over the past 12 months, the next 12 months could be much better. WAM Research’s investment performance still shows it has outperformed its benchmark by an average of 6.7% per annum before fees and expenses over the past seven years.
WAM Research’s current annualised dividend yield is very attractive for income investors. Even if Labor win, they may not have the votes in the senate to change the franking credit rules. I’d consider investing in WAM Research shares today for income in my portfolio.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.