WAM Leaders Ltd (ASX: WLE) shareholders should be accustomed to large dividend payments. After all, Wilson Asset Management has made a name from itself as providing listed investment companies (LICs) that offer market-topping dividend payments. And WAM Leaders is the only WAM LIC that consistently invests in the largest dividend-paying shares on the ASX.
As an LIC, WAM Leaders can receive dividends from the companies that it owns and pass them on to shareholders, complete with franking credits. Some of WLE's top holdings currently include dividend giants like BHP Group Ltd (ASX: BHP), Wesfarmers Ltd (ASX: WES) and Transurban Group (ASX: TCL), so you can expect a lot of cash coming through door with this LIC.
In an ASX release this morning, WAM management has confirmed that it intends to pay an interim dividend for FY20 of 3 cents per share, which represents a 13.2% increase over the FY19 interim payout. If this dividend was annualised, it would represent a yield of 4.92% on current prices, or 7.02% grossed-up with full franking credits.
Does this dividend make WAM Leaders a buy?
Looking at WAM Leaders holistically, it seems like a decent investment. The dividend yield is well above what you could expect from a board ASX index fund like Vanguard Australian Shares Index ETF (ASX: VAS), and WAM Leaders has outperformed this benchmark since inception anyway, delivering a 12.7% per annum return vs the benchmark return of 11.3%. The rate of dividend growth is also very encouraging at 13.2% – and WAM has a long track record of consistently growing its payouts at high rates.
However, I think the performance of WAM's other LICs like WAM Capital Ltd (ASX: WAM) and WAM Research Ltd (ASX: WAX) are more compelling investments for income right now. For example, WAM Capital currently offers a massive yield of 6.92% (or 9.89% grossed-up).
Foolish takeaway
I think WAM Leaders is heading in a very lucrative direction, but it's too early for me to invest for income right now, especially when you have WAM Capital offering such a bumper yield right next door. I'll be keeping a close eye on WAM Leaders' dividend from here and may open a position down the road, especially if it can continue to outperform the index.
