WAM Leaders Ltd (ASX: WLE) has just announced its FY20 half-year result with a large dividend increase.
If you don’t already know WAM Leaders, it’s a listed investment company (LIC) that largely invests in ASX 200 (ASX: XJO) businesses.
WAM Leaders profit numbers
WAM Leaders reported that its operating profit after tax increased by 201.9% to $43.3 million whilst operating profit before tax rose by 185.8% to $56.2 million. Chairman Geoff Wilson said the profit numbers were reflective of the solid investment portfolio performance and the growth in assets over the period.
The results of LICs can seem confusing because they deliver investment returns, a return of -5% can seem bad in an absolute dollar sense compared to last year’s result, whilst generating a return of 10% in one year and 20% in another year shows profit doubling in dollar terms. LIC profits aren’t consistent like normal operating businesses.
Looking at the portfolio, over the six months to 31 December 2019 the WAM Leaders portfolio grew by 6.6% before fees, expenses and taxes compared to the S&P/ASX 200 Accumulation Index return of 3.1%. Over the 12 months to 31 December 2019 the gross performance of WAM Leader’s portfolio was 27.3% compared to 23.4% for the ASX 200 Accumulatio Index.
The total shareholder return for the six months was 13.6% after the reduction in the share price discount to the net tangible assets (NTA).
At the end of the period WAM Leaders’ biggest positions were BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), Rio Tinto Limited (ASX: RIO) and Amcor Plc (ASX: AMC).
WAM Leaders dividend
The WAM Leaders Board increased the interim dividend by 22.6% to 3.25 cents per share.
As a result of this increase, WAM Leaders now has an annualised fully franked dividend yield of 5.2%, or 7.4% when grossed-up.
Is the WAM Leaders share price a buy?
WAM Leaders currently has a profit reserve of 16.8 cents per share which forms part of the NTA per share, so the next two or three years of dividends are funded as long as there isn’t a market crash.
At the end of December 2019 WAM Leaders had a pre-tax NTA of $1.28, so its share price now seems to be trading fairly closely to its NTA. If it continues to outperform the index then I think it would still be worth buying, but at the moment I’m not jumping to buy because the underlying shares are priced quite highly by the market.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended Amcor Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020