12% dividend yield: Is this ASX share a buy?

With a 12% grossed-up dividend yield, is the LIC WAM Research Limited (ASX:WAX) share price a buy for income?

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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.

Motley Fool contributor Tristan Harrison owns shares of WAMGLOBAL FPO. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended Brickworks and Service Stream Limited. 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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