Is WAM Capital Limited (ASX: WAM) the best dividend share on the ASX with its grossed-up dividend yield of 11%?
WAM Capital is the flagship listed investment company operated by the high-performing team at Wilson Asset Management.
This morning, we learned that WAM Capital Chairman Geoff Wilson had bought 93,581 WAM Capital shares on the market yesterday for just over $182,100. That investment is by no means a large one compared to the rest of his assets, but it’s an interesting vote of confidence.
The WAM Capital share price has fallen 11% over the past month and 19% over the past six months. The share price decline can be attributed to dividends being paid out, a decline in value of the WAM Capital portfolio over the past six months and a narrowing of the share price premium compared to the net tangible assets (NTA) per share.
Geoff Wilson has often said he doesn’t like buying things at a premium. Looking at the March 2019 WAM Capital NTA of $1.85, the $2 share price is still an 8% premium – although the NTA may have grown during April. However, the premium is the smallest it has been for some time, it has been above 20% for a lot of the past couple of years.
WAM Capital aims to steadily increase the dividend if it has the profit reserve to do so. It has increased its dividend each year since the GFC and the last two dividends amount to a grossed-up dividend yield of 11%.
If the WAM Capital dividend is maintained (and increases) over the foreseeable future then a 11% yield is clearly very attractive. But, it will require a quick turnaround of investment performance to ensure the profit reserve doesn’t run out.
The past year has been difficult for investors in smaller ASX shares. If you’ve been monitoring WAM Capital for some time then now could be the time to strike. But, the LIC only has the next year of dividends covered with its profit reserve.
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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.