Most of the ASX shares I own pay some sort of passive income. The one with the largest dividend yield in my portfolio is WAM Microcap Ltd (ASX: WMI).
WAM Microcap is a listed investment company (LIC). LICs can be appealing because of their ability to provide investors with diversification. Operating with a company structure allows the business to provide smoothed-out dividend payments for shareholders.
This particular LIC aims to invest in the most exciting, undervalued growth opportunities in the Australian microcap market.
Firstly, I'll talk about why WAM Microcap is in my portfolio and then I'll talk about the dividend yield.
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The appeal of this ASX share
There are a lot of companies listed on the ASX and I'd say it's impossible for one person to follow them all. Additionally, there are some sectors/companies that aren't as easy to understand as others (though they can still be opportunities worth investing in). I don't want to miss out on those compelling stocks.
The WAM Microcap team are looking for opportunities at the small end of the ASX share market, which can make strong returns.
I think it's much easier for a small business to double in size than it is for an already-large business to double in size. Small businesses tend to be overlooked by many fund managers and analysts, meaning they can trade at good value too.
Between June 2017 and May 2025, the WAM Microcap portfolio has returned an average of 16.2% per year. That is the gross return before expenses, fees and taxes. Still, a very impressive return and large enough to fund a large payout and deliver a bit of capital growth over the longer-term. But, past performance is not a guarantee of future returns.
Large dividend yield
I think it makes sense for WAM Microcap to pay a large dividend yield because it can be more nimble and take meaningful positions (for its own portfolio) in small-cap stocks if the LIC remains small. Paying large dividends helps limit the size of the LIC, while also paying a large dividend yield.
The LIC is expecting to pay an annual dividend of 10.6 cents per share in FY25. At the current WAM Microcap share price, that translates into a fully franked dividend yield of 7.3% and a grossed-up dividend yield of 10.4%, including franking credits.
I like the underlying diversification this ASX share offers, as well as providing a large amount of dividend income. At the right time, I think it can be a very effective investment for Aussies want large dividend income and/or exposure to small-caps. It's currently trading at approximately its pre-tax net tangible assets (NTA), which I think is appealing in a falling interest rate environment.
