The WAM Capital Ltd (ASX: WAM) share price is climbing by more than 3% this Tuesday after the listed investment company (LIC) reported its full-year earnings for the 2023 financial year.
At present, WAM Capital shares are up 3.43% at $1.66 after closing at $1.60 a share yesterday and opening at $1.62 this morning.
WAM Capital share price rises as dividends maintained
- Operating profit before tax of $233.2 million, up from the operating loss before tax of $425.9 million in FY2022
- Operating profit after tax of $173.3 million, up from an operating loss after tax of $293.7 million in FY2022
- Final dividend of 7.75 cents per share, fully franked, no change from FY2022
- Full-year dividend for FY2023 of 15.5 cents per share, no change from FY2022
- Profit reserve for dividends sitting at 12.8 cents per share, not accounting for the newly announced final dividend
Although WAM Capital has been able to maintain a final dividend of 7.75 cents per share, as well as its full-year dividend of 15.5 cents per share, the company's dwindling profit reserves do not indicate that this is sustainable.
Indeed, the company warned investors that in order to sustain this dividend at its current level, the WAM Capital portfolio performance would "need to be approximately 16% per annum, grossed-up for expenses and fees". Investors were cautioned that "there can be no certainty that such high returns can be maintained each year".
What else happened in FY2023?
WAM Capital pointed out that its investment portfolio achieved an 18.2% return over the 12 months to 30 June 2023. However, that figure doesn't include expenses or fees. This LIC charges a management fee of 1% per annum, as well as a 20% outperformance fee if the fund's portfolio beats its benchmarks.
Over the three years to 30 June, WAM Capital's investment portfolio has returned an average of 9.7% per annum. That's down to 5.5% per annum over the past five years.
It also doesn't reflect the performance that its investors actually enjoyed over the period. A listed investment company's share price doesn't always follow its portfolio's performance. And over FY2023, WAM Capital shares dropped from $1.72 per share as of 30 June 2022 to $1.50 by the close of trading on 30 June 2023.
That's a loss of just over 13%. Even accounting for the dividends, it hasn't been a positive year for WAM capital shareholders.
As of 30 June, some of WAM Capital's largest portfolio investment positions included Estia Health Ltd (ASX: EHE), Webjet Limited (ASX: WEB) and Flight Centre Travel Group Ltd (ASX: FLT).
What did WAM Capital's management say?
Here's what WAM Capital portfolio manager Oscar Oberg had to say on today's results:
The 2023 financial year was dominated by the largest interest rate hiking cycle in over 30 years and the increasing probability of a global recession. Despite these headwinds, WAM Capital outperformed with the team applying Wilson Asset Management's proven investment process which has delivered consistent long term returns across a range of investment cycles over the last 25 years.
As we enter the 2024 financial year, we remain confident in our catalyst-driven holdings and see a strong period ahead for smallcap undervalued growth companies.
What's next for WAM Capital?
WAM Capital didn't have much to say on what it is expecting for the current financial year going forward, apart from what you see above. However, WAM founder Geoff Wilson did add the following comments:
The WAM Capital investment team made quality investment decisions driving outperformance in FY2023 amid heightened volatility across equity markets.
In FY2024, the Company's ability to continue paying fully franked dividends is dependent on generating additional profits reserves, through positive investment portfolio performance, and franking credits.
WAM Capital share price snapshot
It's been a decent, if not spectacular year for the WAM Capital share price in 2023 so far. Year to date, WAM Capital shares are up 3.44%, including today's sizeable bump.
However, this ASX LIC remains down by 10.54% over the past 12 months, and down an even heftier 33.8% over the past five years, as you can see below:
As it stands today, WAM Captial has a market capitalisation of $1.84 billion, with a trailing dividend yield of 9.28%.
