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Is the WAM Microcap share price a buy for its bigger FY19 special dividend?

Tristan Harrison
dividends

Is it worth buying the WAM Microcap Limited (ASX: WMI) share price after it announced another special dividend? I think WAM Microcap is one of the best listed investment companies (LICs) on the ASX to consider, it’s run by the high-performing team at Wilson Asset Management (WAM).

As expected, the board of WAM Microcap announced a final dividend of 2.25 cents per share, bringing the full year dividend to 4.5 cents per share, an increase of 12.5% on the previous year.

However, WAM Microcap also announced a special dividend of 2.25 cents per share, which is 12.5% higher than FY18’s special dividend. I wouldn’t expect a special dividend every year, but it’s good to keep the LIC at the optimal size for its investment strategy. 

WAM Microcap’s portfolio increased by 7.3% during FY19, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 5.4% over the year. This outperformance was achieved despite holding an average cash weighting of 24.7%. Since inception in June 2017, its portfolio has returned an average of 17.8% per annum.

Some of the leading contributors to the performance this year were City Chic Collective Ltd (ASX: CCX), Jumbo Interactive Ltd (ASX: JIN), Infomedia Limited (ASX: IFM), Rhipe Ltd (ASX: RHP) and People Infrastructure Ltd (ASX: PPE).  

In terms of the net tangible assets (NTA), the before tax NTA increased by 2.2% over the year including 6.25 cents per share of dividends paid during the year. The increase was after corporate taxes paid of 3.6 cents per share, which was the major difference between the NTA performance and investment performance – but don’t forget these tax payments are used for franking credits.

Over the year many LICs saw a decline in their price premium compared to the NTA. WAM Microcap went from a 5.2% premium to the NTA at June 2018 to a 7.9% discount to the NTA at June 2019. However, I think this makes WAM Microcap much more attractive to consider buying. 

Foolish takeaway

With an aim of increasing the dividend each year if possible, I think that WAM Microcap is a very good dividend share to consider. Excluding the special dividend, it has a grossed-up ordinary dividend yield of 5.2%. We’ll soon find out what the NTA was at July 2018 to see what the discount to the NTA is.

I’d be happy to buy more WAM Microcap shares at today’s price for dividends and long-term returns.

Other options to consider buying for a diversified dividend portfolio are these top ASX shares.

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Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Jumbo Interactive Limited. The Motley Fool Australia has recommended Jumbo Interactive Limited and People Infrastructure Ltd. 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. 2019