Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi James, I have been considering WAM as a long term income play. It looks like it has paid a consistent dividend over a long period. It hasn’t been sold off in the past week like many of the underlying securities it would be invested in (still trading a small premium to NTA). Relatively subdued share price growth through the bull run appears its only negative. Could I have your thoughts please?
Hi Sean,
WAM is a listed investment company (LIC) and as such, they can massage the dividend over time. By that I mean they pass through the dividends that their portfolio accrues but at times they also pay dividends out of capital, therefore smoothing the distributions. They are smart, because this is what investors want however the downside is that they can can dip into capital when times are tough which arguably erodes longer term shareholder value.
WAM has dropped from $2.32 down to $2.02 at time of writing so certainly not immune from this recent decline. I would also suspect that given their focus is in the mid cap space, portfolio performance would have also struggled more than the current share price implies, and their next update will still show WAM trading at a decent premium to NTA. To me, it makes little sense to buy something at a price above the value of the underlying portfolio when there are so many other options that allow for easy investment at NTA.
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