The Wilson Asset Management (WAM) team, led by the titular Geoff Wilson, has a reputation for its dividend-spewing Listed Investment Companies (or LICs). The WAM collection of LICs was under direct threat from the proposed changes to franking credit refunds that the Labor party proposed at the weekends’ federal election. As most of us were expecting a Labor victory, the prices of WAM’s LICs had suffered in recent months.
WAM Capital Limited (ASX: WAM) – WAM’s flagship LIC has long been the most popular LIC in the WAM stable. With a market cap of $1.49 billion, it has returned an average of 16.8% per annum since its inception in August of 1999 and currently boasts a dividend yield of 7.6% (including full franking credits). Due to this impressive track record, WAM Capital shares have long traded at a premium to the actual underlying value of the company, known in technical terms as Net Asset Value (or NTA). So although WAM Capital has a market cap of $1.49 billion, the value of the stocks and cash that it holds is less than this.
As WAM Capital has started to show its age and failed to deliver the same level of outperformance in recent years, its NTA had begun to drift closer to its share price. Combined with Labor’s franking credit proposal and the seeming likelihood of an ALP win on the weekend, on Friday the WAM Capital share price was trading at $1.98, which was starting to get very close to the April 30 NTA of $1.93 (which includes an upcoming dividend). As the market opened yesterday, it was clear the effect of the ALP proposal was having on the WAM share price. WAM Capital shares opened at $2.09 and are now trading over 6% above Friday’s close.
Another popular WAM LIC – WAM Research Limited (ASX: WAX) has had a similar experience. WAX has delivered an average of 16.3% per annum since inception in 2010 and is yielding 7.5% (also including full franking credits). WAX (as of April 30) has an NTA of $1.22 (including the upcoming dividend) but on Friday was trading at $1.26. WAX had opened yesterday with a 7% jump in share price and is currently changing hands for $1.34.
With Labor’s franking credit proposal seemingly dead in the (oppositional) waters, the fully-franked yields of WAM and WAX are safe, at least for the medium term. I still have concerns over the trend in performance from these LICs and certainly don’t think they are worth a premium to their NTA’s. However, WAM and WAX are famous for their yields and Mr Wilson knows how reliant his customers are on said dividends – guaranteeing every effort by WAM’s management to maintain them.
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Motley Fool contributor Sebastian Bowen 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.