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3 great LICs I’d buy for big dividends

In this era of very low interest rates I can understand why people are looking for income from shares.

Many share prices have been pushed up, which unfortunately lowers the starting dividend yield.

But listed investment companies (LICs) could be the way to still get a good source of income.

They are able to turn the dividends received and capital gains they make into dividends for their shareholders.

But it’s not just about the yield. You need to think about the manager, the investment returns and what the LIC invests in.

Here are three great LICs for dividends:

WAM Microcap Limited (ASX: WMI)

WAM Microcap looks at some of the smallest shares on the ASX with market capitalisations under $300 million.

The Wilson Asset Management team have performed very well since inception in June 2017, growing the portfolio by 20.1% per annum before fees and expenses. This has been delivered whilst holding a decent amount of cash for protection.

The strong performance has been funding growing ordinary dividends and two solid special dividends so far.

WAM Microcap currently has an ordinary grossed-up dividend yield of 4.5%.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is one of my favourite LICs. It just invests in the funds of fund managers who invest in ASX shares. Those managers work for free, allowing Future Generation to donate 1% of its NTA each year to youth charities.

The underlying holdings have a small cap slant and Future Generation tries to increase its dividend to shareholders each year, which it has done so since starting dividend payments.

It currently has a grossed-up dividend yield of 6%.

Naos Emerging Opportunities Company Ltd (ASX: NCC)

Naos is a small cap focused fund manager, this LIC hunts for the smallest opportunities with market capitalisations under $250 million.

But Naos does things a bit differently, it holds a high-conviction portfolio of just nine names.

If you pick right, a small portfolio can materially outperform over the long-term. It has generated an investment performance of 12.3% per annum before fees but after expenses since inception in February 2013.

It currently has a grossed-up dividend yield of 9.9%.

Foolish takeaway

I think WAM Microcap has the potential to deliver the strongest net returns over time, although I really like the philanthropic nature of Future Generation.

These top dividend shares could also be very good picks for income over the coming years.

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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO and WAM MICRO FPO. 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.

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