There is a wide range of ASX dividend stocks offering different levels of dividend yields.
Some businesses are able to provide a high dividend yield because of a mixture of a relatively low price-earnings (P/E) ratio and a generous dividend payout ratio.
I'd put listed investment companies (LICs) into a somewhat separate category of ASX dividend stocks because they generate profits differently from other businesses.
Instead of selling goods or services, a LIC makes money by generating returns by investing in shares. LICs can then build up accounting profits, paying out a portion each year and retaining some of the gains (with a profit reserve in accounting terms) for when markets aren't performing.
The LIC I want to highlight is WAM Microcap Ltd (ASX: WMI). I think it's a strong ASX dividend stock pick for three reasons.
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Impressive investment returns
A key element of LIC's success has been its focus on buying "the most exciting undervalued growth opportunities" in the Australian microcap market.
ASX small-cap shares can deliver great returns because of how early on in their growth journey they are. It's usually much easier for a business to double its revenue from $10 million to $20 million than it is to go from $1 billion to $2 billion.
WAM Microcap is very effective at generating returns thanks to its investment style and the size of the businesses it deals with. Between inception in June 2017 and February 2026, the portfolio return was an average of 15.4% per year, outperforming the small-cap benchmark by around 7% per year, before fees, expenses and taxes.
The WAM strategy is to invest in growing businesses where there's a catalyst that could send the share price higher.
That level of return means the ASX dividend stock is capable of delivering a large dividend and capital growth for the LIC.
Large and growing dividend yield
The LIC has been steadily growing its annual payout each year since FY18 – the only year it hasn't increased its payout was FY24, when it was maintained at 10.5 cents per share.
In FY26, the LIC is expecting to increase its annual payout by 1% to 10.7 cents per share.
Therefore, the ASX dividend stock could provide a grossed-up dividend yield of around 10.25%, including franking credits, at the time of writing.
That's a great starting dividend yield, in my view, and it could continue to grow.
Sizeable profit reserve
One of the key reasons WAM Microcap can be such a stable dividend payer is that it has built up a sizeable profit reserve to pay future dividends.
At 27 February 2026, it had built up a profit reserve of 55.4 cents per share. That means it has the accounting profits to pay around five years of dividends at the current level, even if it didn't make any more profit in that time.
I think this ASX dividend stock is a very appealing business, and it looks like a good time to buy after dropping 13% since mid-January 2026.
