An ASX share with a dividend yield of 10% might be sounding alarm bells to you (and for good reason). Even the biggest, most established ASX blue chip dividend shares like Commonwealth Bank of Australia (ASX: CBA) will only net you a grossed-up yield of around 7.85%. Anything beyond this is instinctively viewed as a yield trap.
But I’ve found two ASX listed investment companies (LICs) that I don’t believe to be yield traps and both are currently offering grossed-up yields around 10%
WAM Research Limited (ASX: WAX)
This LIC is run by Wilson Asset Management – who are famous for their stable of LICs with big dividends. WAM Research is no different, offering a dividend of 9.7 cents per share, which translates to a grossed up yield of 10.01% on current prices. In addition, WAM Research has also delivered an annualised average return of 16.7% (including dividends) since 2010, which is likely to be a contributing factor to this LIC’s current share price premium of 13% over the net tangible assets (NTA) per share. WAM Research invests in small- to mid-cap ASX stock that its management view as likely to appreciate – some of its current top holdings include the A2 Milk Company Ltd (ASX :A2M) and Xero Ltd (ASX: XRO)
Pengana International Equities Ltd (ASX: PIA)
This LIC is run by Pengana Capital Group Ltd (ASX: PCG) and looks beyond our shores to gather a portfolio of 30–50 global companies that are ‘ethically-screened’. This means that any company involved in gambling, animal testing, tobacco or fossil fuels are excluded from PIA’s investment mandate. Currently, 50% of the LIC’s investment portfolio is in US-based companies, with a further 25% in Europe and 9% in Emerging Markets. Some top companies include Tencent, Cigna Corp and AON.
Pengana International Equities currently pays a 7 cent per share dividend, which gives it a grossed-up yield of 10% on current prices.
Both of these LICs (in my opinion) would make attractive investment for any income investor or anyone who loves a big yield in general. Although I wouldn’t count on payout consistency if there was a share market crash, it might be a good time to make some hay while the sun is shining.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and Xero. 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.