Why I own this ASX share with a dividend yield of 11.5%

This investment offers a lot more than just a big dividend yield.

The ASX share WAM Microcap Ltd (ASX: WMI) is the stock in my portfolio with the highest dividend yield. But I like the business for more than just the passive income it offers.

WAM Microcap is a listed investment company (LIC) that aims to invest in the most exciting undervalued growth opportunities in the microcap end of the ASX share market.

It has been in my portfolio for a long time and I still own it for a few compelling factors.

Man holding fifty Australian Dollar banknotes in his hands, symbolising dividends.

Image source: Getty Images

Small-cap exposure

There are hundreds and hundreds of businesses on the ASX of a variety of sizes. We're familiar with the large businesses within the S&P/ASX 200 Index (ASX: XJO), but there are a lot of other stocks with smaller market capitalisations.

A lot of ASX shares can produce good returns, particularly the smaller ones because they may be underrated by the market and they could have a lot of growth ahead of them.

I think those smaller stocks are worth getting exposure to with their return potential, but I'm using the WAM Microcap investment team to pick those stocks at the small end of the ASX share market.

In my view, the smaller you go down the market capitalisation list, the more important it is to fully understand the business, the balance sheet and so on.

Despite difficult investing conditions, the WAM Microcap portfolio has performed very well over the long term. Since June 2017, it has delivered an average annual return of 13.5%, before fees, expenses, and taxes. That's close to double the return of its benchmark.

Diversification

The portfolio is not just a few small-cap names, but dozens of small ASX shares with good return potential. It really adds to my diversification with the various names in the portfolio.

I like how its portfolio is spread across a number of sectors – more than 9% of its portfolio is invested in industrials, consumer discretionary, financials, IT, healthcare and materials.

It's a pleasing addition to my portfolio, and only after considering the two elements above am I happy to enjoy the business's passive income.

Big dividend income

As a listed investment company, WAM Microcap has the ability to turn investment returns into dividend cash payments for shareholders.

It's helpful for the LIC to pay huge dividend income to ensure the LIC stays small – that's important when it comes to small-cap investing, otherwise the LIC would become too big.

WAM Microcap has grown its annual dividend every year since FY18, except for FY24, when it maintained the dividend. That's a great record of stability.

In FY26, it grew its annual dividend per share by 1% to 10.7 cents per share. That translates into a grossed-up dividend yield of more than 11.6%, at the time of writing. It has a profit reserve of 49.8 cents per share as of August 2026, so it already has enough accounting funding to pay dividends for close to five years.

It's a great ASX share for dividend income.

Motley Fool contributor Tristan Harrison has positions in Wam Microcap. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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