WAM Research Limited (ASX: WAX) has a grossed-up dividend yield of 12% – is it a buy for income?
WAM Research is a listed investment company (LIC) which is run by the high-performing team at Wilson Asset Management (WAM).
It looks to invest in undervalued growth shares which are usually small caps or mid-caps on the ASX. I think it's been one of the best-performing LICs on the ASX over the past decade.
What are some of the shares it owns?
In its recently-announced March 2020 update it said that some of its largest holdings are: Bapcor Ltd (ASX: BAP), Brickworks Limited (ASX: BKW), Breville Group Limited (ASX: BRG), Cleanaway Waste Management Ltd (ASX: CWY), City Chic Collective Ltd (ASX: CCX) and Service Stream Limited (ASX: SSM).
I like all of these picks.
How has it performed?
At 31 March 2020 its investment returns before fees, expenses and taxes had outperformed the S&P/ASX All Ordinaries Accumulation Index by 4.2% per annum over the past five years and 5.1% over the past seven years. That's a solid performance in my book.
It helps that WAM Research usually keeps a high level of cash on hand for protection and opportunities, like the coronavirus.
What about the dividend?
WAM Research has used this strong investment performance to pay a steadily growing dividend since the GFC. It currently offers an annualised grossed-up dividend yield of 12% right now.
I'm unsure if the dividend will be maintained at this high level over the next 12 months, but even a 10% yield is very solid with interest rates so low.
Is it a buy today?
WAM Research continues to trade at a high premium compared to its net tangible assets (NTA). I don't think it's a good value buy for this reason, even if the yield is high. I'd prefer WAM Global Ltd (ASX: WGB) which is trading at a nice discount to its NTA, though the yield is lower.
