Listed investment company (LIC) WAM Capital Limited (ASX: WAM) has reported its FY20 half-year result to 31 December 2019, it offers investors a very big dividend.
WAM Capital profit numbers
WAM Capital reported a 176.9% increase in its operating profit after tax to $70.4 million in the six months to 31 December 2019. Chairman Geoff Wilson said the operating profit was reflective of the solid investment portfolio over the period.
The results of LICs can seem confusing because they deliver investment returns, a return of -5% can seem bad in a 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 Capital portfolio returned 8.9% before expenses, fees and taxes, outperforming the S&P/ASX All Ordinaries Accumulation Index by 5.3%. Over the past year WAM Capital’s gross portfolio return was 22.4%, underperforming the index by 1.7%.
The WAM Capital total shareholder return for the six months to December 2019 was 15.2% after the portfolio return and an increase in the share price premium to net tangible assets (NTA) per share.
Some of WAM Capital’s strongest performers included mining technology company Codan Limited (ASX: CDA) which went up 114.7%, payment solution provider EML Payments Ltd (ASX: EML) which went up 55.3% and mortgage broking company Australian Finance Group Ltd (ASX: AFG) which went up 73.3%.
At the end of December 2019, WAM Capital’s positions with a weighting of more than 2% were Brickworks Limited (ASX: BKW), Seven Group Holdings Ltd (ASX: SVW) and Pengana International Equities Ltd (ASX: PIA).
WAM Capital dividend
The WAM Capital Board decided to maintain the dividend and declared an interim dividend of 7.75 cents per share with a 2.5% discount for the dividend re-investment plan.
As always, WAM Capital reminded investors that it’s committed to paying a stream of fully franked dividends to shareholders as long as the company has sufficient profit reserves and franking credits and it is within prudent business practices.
The annualised dividend currently offers a grossed-up dividend yield of around 10%.
Is the WAM Capital share price a buy?
WAM Capital has been a solid performer since inception over two decades ago, though the last decade hasn’t been quite as good. However, its portfolio has been very good over the past year and it’s well diversified.
It offers a very big dividend yield in this low interest environment. However, with a profit reserve of 10.6 cents it has less than 12 months of dividends banked, assuming markets don’t go negative.
When you add the small profit reserve to the fact that WAM Capital is now trading at an expensive premium to its NTA, it makes other dividend shares like WAM Leaders Ltd (ASX: WLE) seem more attractive and sustainable.
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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 Emerchants Limited. The Motley Fool Australia has recommended Brickworks and Emerchants 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