Is the WAM Capital share price a buy for its (almost) 10% dividend yield?

WAM Capital Limited (ASX:WAM) has a grossed-up dividend yield of almost 10%, is the share price a buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the WAM Capital Limited (ASX: WAM) share price a buy for the grossed-up dividend yield of almost 10%?

It's hard to find shares on the ASX with such high dividend yields these days. People are searching for yield because of the RBA's interest rate cuts which have pushed share prices up and dividend yields down. I don't think shares like Sydney Airport Holdings Pty Ltd (ASX: SYD) and Transurban Group (ASX: TCL) are the answer because of how expensive they are.  

WAM Capital is the oldest listed investment company (LIC) in the Wilson Asset Management stable. Its job is to invest in ASX shares and try to generate good returns whilst protecting shareholder money.

It has been a strong performer since inception in August 1999, producing an average return per annum of 16.7% before fees, expenses and taxes.

FY19 was a tough year, but FY20 has been good for the WAM Capital portfolio to the end of August 2019, outperforming the S&P/ASX All Ordinaries Accumulation Index by 3.4% before fees, taxes and expenses.

WAM Capital increased its dividend each year since the GFC up to FY19 and then maintained the dividend last financial year. It's a solid dividend track record at a consistently high yield.

But growing the dividend requires a high level of investment performance, otherwise WAM Capital would deplete its profit reserve, which was down to 13 cents per share at the last disclosure.

But, WAM Capital is currently valued at a 20% premium to its pre-tax NTA. This is quite expensive – it's better to buy things at a discount, like Geoff Wilson has been doing with WAM Leaders Ltd (ASX: WLE).

Foolish takeaway

Whilst WAM Capital is certainly one of the better performing LICs I think it's trading at a too high premium to buy today, and its profit reserve is lower compared to another WAM LIC like WAM Research Limited (ASX: WAX), which could be a better idea for income.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. 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.

More on ⏸️ High Yield

⏸️ High Yield

3 secret ASX dividend shares with large yields

These 3 ASX dividend shares are small but they have large dividend yields. One pick is Pacific Current Group Ltd…

Read more »

asx share price dividend yield represented by street sign saying the word yield.
⏸️ High Yield

3 ASX dividend shares with yields above 5%

The 3 ASX dividend shares in this article have yields of more than 5%. One of them is furniture business…

Read more »

ASX shares represented by gold letters spelling ASX sitting atop a line graph
⏸️ High Yield

4 small cap ASX dividend shares with large yields

In this article are 4 small cap ASX dividend shares with large dividend yields including Pacific Current Group Ltd (ASX:PAC).

Read more »

fingers walking up piles of coins towards bag of cash signifying asx dividend shares
⏸️ High Yield

3 ASX shares with large dividend yields

In this article are 3 ASX dividend shares with large dividend yields. One of those businesses is Pacific Current Group…

Read more »

⏸️ High Yield

Macquarie's latest ASX "buy" idea has a 10% yield

It may have been high-growth tech stocks that have dominated but the latest ASX “buy” idea from Macquarie may be…

Read more »

⏸️ High Yield

Get paid huge amounts of cash to own these ASX dividend shares

I think that these ASX dividend shares can pay large amounts of cash to investors needing income, with good stability…

Read more »

⏸️ High Yield

Meet the ASX 200 stock with a dividend yield that'll hit ~14% in FY22

High yield stocks have lost out to high growth momentum stocks. But this could be the time to be buying…

Read more »

⏸️ High Yield

Are these high yield ASX dividend shares worth buying?

Are the high yield ASX dividend shares in this article worth buying? One of the considerations is Telstra Corporation Ltd…

Read more »