ASX investors are always looking for ways to boost passive income.
With the Reserve Bank of Australia (RBA) expected to deliver further rate cuts this year, term deposits are starting to look less appealing.
In March, the average interest rate on a $10,000 term deposit in Australia was 3.2% per annum, according to CEIC Data. That's down from 3.25% in February, following the RBA's decision to cut the official cash rate by 0.25%.
With further rates on the horizon, starting later this month, that number is likely to trend lower over the rest of 2025.
This may prompt investors after passive income to search for better alternatives.
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Why do dividends appeal so much to ASX investors?
Dividend investments have always been popular among retirees who seek a predictable cash flow to mimic a pay cheque, allowing them to budget accordingly. Recently, younger Australians have sought to build a portfolio of dividend investments to offset higher inflation and meet living costs. Dividend investing also provides considerable tax benefits in Australia due to the franking credits system. Fully franked dividends are among the most popular investments in Australia.
While exchange traded funds (ETFs) have surged in popularity in recent years, there are several listed investment companies (LICs) with attractive dividend yields.
What are listed investment companies?
Listed investment companies (LICs) are managed funds that are listed on the ASX like any other share. They may trade above or below their net asset value (NAV), providing another way for investors to make money.
While their management fees are higher than those of ETFs, they are actively managed. That can be particularly advantageous in volatile markets, allowing fund managers to buy oversold companies.
2 listed investment companies with yields above 7%
Independently owned investment manager Wilson Asset Management, which has been around since 1997, offers two attractive LICs with yields above 7%.
The yield on these two LICs is well above that of most popular blue-chip ASX stocks, such as BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA), which both offer yields of 5.0% and 2.9%, respectively.
WAM Leaders Ltd (ASX: WLE) invests in ASX 200 companies. Investments are selected based on compelling fundamentals, a robust macroeconomic theme, and a catalyst. The LIC also aims to deliver a stream of fully franked dividends while preserving capital. WAM Leaders' share price has underperformed over the past year, declining 14%. However, this has boosted the dividend yield to 7.8%. That amounts to a grossed-up yield of 11.1%, which is likely to appeal to those after passive income.
A second LIC from the Wilson Asset Management group of managed funds to consider is WAM Microcap Ltd (ASX: WMI). This LIC invests in undervalued microcap companies, with market capitalisations of less than $300 at the time of acquisition. There is often limited coverage available on such companies due to their size, making it hard for retail investors to make an educated decision on the investment opportunity. WAM Microcap's share price is flat over the past year. While not quite as high as WAM Leaders, its dividend yield is still attractive at 7.2% (10.2% grossed up).
