WAM Microcap Limited (ASX: WMI) reported its FY21 result this week. Could it be the best ASX dividend share around?
WAM Microcap is a listed investment company (LIC) that targets businesses with market capitalisations below $300 million at the time of purchase.
FY21 result
WAM Microcap reported that it generated an operating profit before tax of $107 million, up from $14.8 million in FY20. It also generated $76.1 million of operating profit after tax in FY21, compared to $11.3 million in FY20.
It was a record year for the ASX dividend share.
But as a LIC, the more important numbers is the growth in percentage terms. LICs generate profit from its investment portfolio. The gross and net investment performance are what funds the ASX dividend share’s payouts and increases the underlying value of the business.
Over FY21, the portfolio delivered a gross return (before fees, expenses and taxes) of 53.2%. That was 20% better than the return of the ASX small cap share market. Not every year will be like this. There may never be such a strong year again.
Over the 2021 financial year, it generated a total shareholder return of 58.7%. That’s share price gains plus dividends paid.
WAM Microcap’s FY21 dividends
A key part of the result were the dividends that were declared.
It grew its total FY21 ordinary dividend 33% from 6 cents to 8 cents per share.
The LIC also paid a large special dividend of 4 cents per share, which was 33% bigger than the special dividend in FY20.
Is WAM Microcap the best ASX dividend share?
There are a few things that I look for in ASX dividend shares.
To qualify as a dividend share it needs to pay a good dividend. WAM Microcap is certainly doing that. At the latest WAM Microcap share price it has an ordinary fully franked dividend yield of 4%. Including the special dividend it’s a 6% fully franked dividend yield.
Dividend reliability is another factor. It’s not an old LIC yet, but WAM Microcap has paid a growing dividend every year since it started paying one in FY20.
Growth of the dividend and underlying value is very important. WAM Microcap just delivered a large 33% increase to the dividend. Its net tangible assets (NTA) continues to rise too, thanks to the strong performance.
The LIC also comes with diversification because it’s a LIC. It owns dozens of different businesses. At the end of July 2021, some examples were: Seven West Media Ltd (ASX: SWM), Tuas Ltd (ASX: VGL), Atomos Ltd (ASX: AMS) and Capitol Health Ltd (ASX: CAJ).
WAM Microcap ticks those boxes for me.
However, I wouldn’t call the ASX dividend share great value today. At a share price of $1.98, the WAM Microcap share price is valued at an almost 18% premium to the pre-tax NTA at the end of July 2021. WAM Microcap might have grown its NTA a bit since then, but probably not enough to substantially close that gap. I’d wait for a smaller premium, perhaps under 10%, before buying shares.
