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3 income shares with BIG dividend yields

It’s getting hard to find income shares with BIG dividend yields on the ASX.

Income-seekers are being pushed into shares with the Australian interest rate so low because of the Reserve Bank of Australia’s cuts.

There are still dividend shares with big yields out there, you just have to find them. But be wary of some high yield shares, big yields could mean little future capital growth or even be a yield trap:

WAM Research Limited (ASX: WAX) 

WAM Research is a listed investment company (LIC) and it could claim the title of being the best high-yield share of the last decade. Being a LIC means it can turn its strong investment performance into a large and growing dividend. It targets undervalued small and medium growth businesses.

Since July 2010 it has generated a portfolio return of 16.2% per annum before expenses, fees and taxes, outperforming the S&P/ASX All Ordinaries Accumulation Index’s gross return by 6.7% per annum.

It has increased its dividend each year since the GFC and it currently has a trailing grossed-up dividend yield of 9.7%.

Some of its current top holdings include Brickworks Limited (ASX: BKW), BWX Ltd (ASX: BWX), Breville Group Ltd (ASX: BRG), City Chic Collective Ltd (ASX: CCX), CSR Limited (ASX: CSR) and Domain Holdings Australia Ltd (ASX: DHG).

Smartgroup Corporation Ltd (ASX: SIQ) 

Smartgroup is a company which aims to simplify salary packaging, fleet management and a range of other employee management services for organisations across Australia, it has been operating since 1999.

Since the beginning of October 2019, the Smartgroup share price has fallen by 46% after announcing a CEO change and giving a profit update. The share price fall has increased its dividend yield quite a lot.  

If Smartgroup at least maintains its ordinary dividend over the next 12 months then it offers a grossed-up dividend yield of 9.1%.

Naos Emerging Opportunities Company Ltd (ASX: NCC)

This is a LIC which targets shares with a market capitalisation under $250 million. Small shares have stronger growth potential because it’s much easier to grow a business from $100 million to $200 million rather than $1 billion to $2 billion.

Naos Emerging Opportunities Company’s LIC structure also means it can turn investment returns into a solid dividend. It increased its dividend each year from FY13 to FY18 and then maintained it in FY19.

It currently offers a trailing grossed-up dividend yield of 10%. Two of its eleven portfolio holdings are: CML Group Ltd (ASX: CGR) and Saunders International Ltd (ASX: SND).

Foolish takeaway

All three of these shares have yields of more than 9% which is attractive in this era. I’d probably choose WAM Research out of the three because of its diverse, but strong, portfolio.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia has recommended Brickworks. 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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