WAM Research Ltd (ASX: WAX) is currently offering a grossed-up, fully franked dividend yield of 10%. Is this a buy, or too good to be true?
The post Attention: This ASX dividend share offers a fully franked 10% yield appeared first on Motley Fool Australia. –
When it comes to ASX dividend shares, usually investors are sceptical when a yield of 10% or more is on offer. These shares are often referred to as ‘dividend traps’ because the yields simply look too good to be true (and in a dividend trap’s case, they are). However, sometimes an opportunity for a 10%-plus yield is worth a good look.
So today, I’ll be looking at an ASX dividend share that indeed offers a trailing dividend yield of 6.95% on current prices, which grosses-up to 9.93% if you include the value of its full franking credits.
That share is WAM Research Limited (ASX: WAX)
What is WAM Research?
WAM Research is a listed investment company (LIC), which basically means it’s a company that buys and sells shares of other companies on behalf of its investors. It’s a similar structure to a managed fund, but is listed on the stock exchange in its own right.
WAM Research is run by the reputable Wilson Asset Management (WAM) and was founded back in 2003. Since 2010, the LIC has returned an average performance of 15% per annum (not accounting for fees and taxes). Its modus operandi is finding ‘undervalued’ industrial growth shares that the management team sees as having a ‘pricing catalyst’ ahead of it (something with the potential to result in share price appreciation). Once this catalyst is realised (if it is), the shares are often sold and the profit banked.
Some of the shares that WAM Research is currently invested in (as of 30 September) include Adairs Ltd (ASX: ADH), Elders Ltd (ASX: ELD), Breville Group Ltd (ASX: BRG), Kogan.com Ltd (ASX: KGN) and Redbubble Ltd (ASX: RBL).
Is a 10% dividend sustainable?
WAM Research banks its investing profits in what it calls a ‘profit reserve’. Dividends are then paid out of this profit reserve. So WAM Research’s last two dividends (paid in February and August 2020) came in at 4.9 cents per share each. That 9.8 cents per share in annual dividends is what gives WAM Research a trailing dividend yield of 6.95%, based on the most recent share price of $1.41 (at the time of writing).
So WAM Research’s profit reserve can give us a fairly good idea of how sustainable this massive yield is. As of 30 September, the LIC reported that its profit reserve stands at 34.9 cents per share. Using some crude mathematics, we can see that WAM Research has enough petrol in its tank to fund the current dividend for another three or so years. That looks pretty sustainable to me.
Upon examination, WAM Research’s stupendous 10% dividend yield looks to be sustainable, at the very least for a number of years. Given this LIC’s long history of impressive performance, and its income potential, I think WAM Research would look pretty appealing for those investors seeking dividend income from their ASX shares.
Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.
*Returns as of 6/8/2020
- New WAM Alternative Assets LIC appoints portfolio manager
- 3 ASX shares I want to buy in October
- Is the WAM Capital (ASX:WAM) 10% dividend yield sustainable?
- Are these high yield ASX dividend shares worth buying?
- 2 ASX dividend shares with yields over 8%
Sebastian Bowen owns shares of WAM Research Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended ADAIRS FPO, Elders Limited, and Kogan.com 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 post Attention: This ASX dividend share offers a fully franked 10% yield appeared first on Motley Fool Australia.