Does the WAM Capital (ASX:WAM) share price really offer a 10% dividend yield?

We take a look at this listed investment company's dividend yield.

Tristan Harrison

Author Bio Tristan Harrison has a decade of experience as an ASX share investment writer and was previously a business, tax and audit accountant for seven years. Tristan has contributed to The Motley Fool since October 2016. He has an advanced diploma from the Association of Accounting Technicians and is currently enrolled in the Chartered Institute Management Accountant (CIMA) program. Tristan's goal is to help Australians learn about great ASX shares that can help grow their portfolio, wealth and dividends over the long-term. Areas of Expertise ASX dividend shares and passive income strategies ASX growth shares and ETFs Business and company financial analysis Franking credits and personal tax topics Personal finance Education Advanced diploma from the Association of Accounting Technicians Enrolled in the Chartered Institute Management Accountant (CIMA) program Social Media X/Twitter Favorite Investment Quote "Live within your income and save so that you can invest." — Charlie Munger

Published March 24, 2022 3:11 pm AEDT

WAM Capital Limited (ASX: WAM) is one of the largest listed investment companies (LICs) on the ASX. But does it have a 10% dividend yield at the latest WAM Capital share price?

According to the ASX, WAM Capital has a market capitalisation of more than $2 billion. There are not many LICs that are bigger, though two examples are Argo Investments Limited (ASX: ARG) and Australian Foundation Investment Co Ltd (ASX: AFI).

dividend share — Image source: Getty Images

How big is the WAM Capital dividend yield?

The LIC has been paying an annualised dividend of 15.5 cents per share since 2018.

At the current WAM Capital share price, that dividend translates into a dividend yield of 7%. When franking credits are added, the grossed-up dividend yield becomes 10%.

However, the LIC notes that the company's ability to continue paying fully franked dividends is dependent on generating additional profit reserves and franking credits. At the end of the period, the company's profit reserve was 19.7 cents per share, before the payment of the declared fully franked FY22 interim dividend of 7.75 cents per share.

How is the portfolio performance going?

In the six months to 31 December 2021, the LIC generated an investment portfolio return of 4.8%. This quoted return is before expenses, fees, taxes, and capital management initiatives.

Over the half-year, the All Ordinaries Total Accumulation Index (ASX: XAOA) returned 4.6%. So, there was an outperformance in gross return terms by WAM Capital's portfolio of 0.2%.

In the decade to 31 December 2021, WAM Capital's portfolio average gross return of 14.8% per annum was 3.8% better per year than its benchmark.

However, there has been a lot of volatility since December 2021. WAM Capital's net tangible assets (NTA) before tax have declined from $1.88 on 31 December 2021 to $1.71 on 28 February 2022.

What are some of the ASX shares that WAM Capital owns?

The portfolio's investment performance can impact the WAM Capital share price and dividend funding (being the profit reserve).

The LIC is looking for the most compelling undervalued growth opportunities in the Australian market for its portfolio.

In the February 2022 update, it revealed a number of its top holdings.

There were some 'reopening trade' ASX shares in there, including Ardent Leisure Group Ltd (ASX: ALG), Accent Group Ltd (ASX: AX1), Corporate Travel Management Ltd (ASX: CTD), Event Hospitality and Entertainment Ltd (ASX: EVT), and Idp Education Ltd (ASX: IEL).

WAM Capital also had these businesses among its top 20 holdings: Brickworks Limited (ASX: BKW), Carsales.com Ltd (ASX: CAR), GUD Holdings Limited (ASX: GUD), IPH Ltd (ASX: IPH), and PEXA Group Ltd (ASX: PXA).

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