Interest rates are at record lows in Australia, which is bad news for savers. Retirees in-particular are being punished for keeping their assets in the safest option of cash.
If you had $1 million in the bank you’d only be earning, at best, around $28,000 to $30,000. This isn’t enough for most people to live on, so the best option to boost income could be to look at listed investment companies (LICs) on the share market.
The only thing that LICs do is invest in other shares and hopefully generate good returns for shareholders. Most LICs then pay out that profit as a large, fully franked dividend. Franking credits are a ‘bonus’ for the individual, it’s a tax refund of company tax attached to a dividend and usually results in less taxes to pay or perhaps a refund for the shareholder.
There are a variety of LICs, just like there are a variety of normal shares. Some LICs focus on small caps, some focus on large caps, some focus on international shares and so on.
Here are three LICs that could deliver the income you’re looking for:
NAOS Absolute Opportunities Co Ltd(ASX: NAC)
This LIC’s hunting ground is stocks with market capitalisations between $400 million and $1 billion with a focus on the industrial sector.
Its portfolio has generated an average return of 20.54% per annum over the past three years and one of the company’s objectives is a sustainable fully franked dividend. The dividend has grown every year since inception.
The grossed-up dividend yield is currently 6.77%.
WAM Leaders Ltd(ASX: WLE)
WAM Leaders is one of the larger LICs run by Wilson Asset Management. Its focus is the stocks in the ASX200, the largest stocks in Australia. The company aims to beat the market and deliver a big dividend to shareholders.
Management want to bring the yield in line with the other WAM LICs once it has enough profit reserves, meaning the grossed-up yield is likely to be at least 8%.
Clime Capital Limited(ASX: CAM)
Clime is a smaller LIC that invests in large caps, medium caps, small caps and international shares. It has a very diverse portfolio and that could suit some investors.
Clime has increased its dividend consecutively for the past five years and currently has a grossed-up dividend yield of 8.13%.
Of the three choices I’d probably choose Naos first, then WAM Leaders and finally Clime. Capital growth is important too and I think Naos has proven the investment team’s ability and hunting ground is likely to produce the best results.
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.