Listed investment company (LIC) WAM Research Limited (ASX: WAX) has just announced its half-year result which included another dividend increase.
WAM Research’s profit numbers
WAM Research announced that it achieved a 159.3% increase in operating profit after tax to $11 million. Chairman Geoff Wilson said this growth reflected the solid investment performance over the half-year.
The results of LICs can seem confusing because they deliver investment returns, a return of -5% can seem bad in an absolute dollar sense compared to last year’s result, whilst generating a return of 10% in one year and 20% in another year shows profit doubling in dollar terms. LIC profits aren’t consistent like normal operating businesses.
Looking at the portfolio, over the six months to 31 December 2019 the WAM Research portfolio increased by 8% before fees, expenses and taxes, outperforming the S&P/ASX All Ordinaries Accumulation Index by 4.4% with an average cash level of 21.8%.
Over the past year, WAM Research’s gross portfolio investment performance was 23.7%, slightly beaten by the All Ords Accumulation Index’s return of 24.1%.
The total shareholder return for WAM Research’s shareholders over the six months was 15% with the investment performance and an increase in the share price premium to its net tangible assets (NTA) per share.
The above numbers are important for dividend investors because the investment performance is what funds the payment of dividends.
WAM Research dividend
The Board of WAM Research decided to increase the interim dividend by 1% from 4.85 cents per share to 4.9 cents per share.
WAM Research had a profit reserve of 30.1 cents at December 2019, so it currently has a profit reserve of around three years at the current annualised dividend rate.
Is WAM Research a buy?
I think that WAM Research is one of the best ideas for big dividends. It has increased its dividend every year since the GFC.
However, the share price hasn’t managed to go anywhere over the past three years despite the good performance because it has mostly paid out all of the gains it has made.
It’s trading a premium of more than 20% to its January 2020 NTA. This is an expensive premium.
I think if you just want a big dividend with exposure to a great investment team then WAM Research is a good choice. However, it’s expensive and we’re unlikely to see much capital growth because of how big the dividend is. It would be best suited for investors in retirement with their low tax rate who benefit most from franking credits.
But, I think some of the other WAM LICs would be better value picks today.