The WAM Global Limited (ASX: WGB) share price is up around 3% after announcing a larger-than expected FY20 final dividend for investors.
Overview of WAM Global
WAM Global is a listed investment company (LIC). It's operated by Wilson Asset Management. The job of a LIC is to invest in other shares on your behalf. As the name may suggest, WAM Global invests in global shares. It's meant to be the international version of WAM Capital Limited (ASX: WAM). It provides geographic and currency diversification compared to the domestic WAM LICs.
One of the benefits of LICs is that they can make investment returns from capital gains as well as receiving investment income from shares. LICs can then pay out some of those investment returns as steady dividends or retain the profit for more growth.
WAM Global looks for international shares where there's a catalyst that would cause the share price to rise. It's particularly looking for what it describes as 'undervalued international growth companies'.
For shareholders it wants to provide a stream of fully franked dividends, provide capital growth over the medium-to-long term and preserve capital. As WAM Global's investments grow in value, hopefully the WAM Global share price will rise as well.
FY20 dividend
The board of WAM Global decided to declare a fully franked final dividend of 4 cents per share, bringing the FY20 final dividend to 7 cents per share. This is a 250% increase on FY19's total dividend and a 100% increase on the final FY19 dividend.
To pay future dividends WAM Global needs a profit reserve to pay from. WAM Global said that it had a profit reserve of 24 cents per share as at 30 June 220, which is 3.4 years of dividend coverage. WAM Global said it wants to pay a growing stream of fully franked dividends.
FY20 investment performance
The WAM Global share price and dividends are influenced by the investment performance of the LIC.
Before fees, expenses and taxes, the WAM Global investment portfolio increased by 3.1% during FY20, it outperformed the MSCI World SMID (small/mid) Cap Index in Australian dollar terms by 5%. However, it unperformed the MSCI World Index (AUD) which rose by 4.8%, it was driven by large cap tech companies which performed strongly during COVID-19 such as Amazon.
What shares does WAM Global own?
WAM Global revealed some of shares it owned at the end of June 2020.
Its biggest 10 positions included: Nomad Foods, Tencent, Lowe's, Dollar General, Thermo Fisher Scientific, Kobe Bussan, Microsoft, Aon, AutoZone and Hasbro.
The next biggest 10 holdings were: Intuit, CME, Intercontinental Exchange, CDW, HelloFresh, Logitech, Edwards Lifesciences, Electronic Arts, Fidelity National Information Services and Arista Networks.
This is a diversified group of shares that should be able to perform well regardless of what the global economy does in regards to COVID-19.
Is the WAM Global share price a buy?
At the current WAM Global share price it's trading at a 14% discount to the net tangible asset (NTA) despite today's rise. I think that's an attractive discount. The LIC that is well managed and has the potential to keep outperforming the MSCI small and medium cap index.
With the bigger than expected final FY20 dividend, WAM Global now offers an impressive dividend yield. Using an annual dividend payment of 7 cents per share, it offers a grossed-up dividend yield of 5.1%. If WAM Global pays another 4 cents per share dividend in six months then the forward grossed-up dividend yield could be 5.8%.
The management fees are certainly a drag on the net performance of the LIC, but if your focus is dividend income then I think this is a good time to buy WAM Global shares at an attractive NTA discount with a growing dividend.
