It’s no secret 2020 so far has been the year of the disappearing dividend. We’ve had a revolving door of companies cancelling, slashing, deferring or suspending their shareholder payouts so far this year.
That far-from-illustrious conga line includes the ASX banks like Westpac Banking Corp (ASX: WBC). Then there’s Ramsay Health Care Limited (ASX: RHC), BHP Group Ltd (ASX: BHP), Sydney Airport Holdings Pty Ltd (ASX: SYD), Qantas Airways Limited (ASX: QAN) and Transurban Group (ASX: TCL). The list goes on.
So where to turn for ASX dividend income in 2020? It’s a vexing conundrum, made worse by the fact there are few opportunities for yield outside the world of dividend shares these days. With interest rates at record lows, the old alternatives of cash or government bonds are out of the question.
Luckily, there is one ASX dividend share that I’m looking at today that I think is a fantastic option.
It’s an ASX dividend share with 9% yield
Enter WAM Research Limited (ASX: WAX). WAM Research is a listed investment company (LIC) run by the LIC powerhouse of Wilson Asset Management (the WAM in WAM Research).
WAM Research has been around in its current form since 2010. Since then, it has returned an average of 14% per annum before fees and taxes. It has managed this performance through an investment mandate which involves buying undervalued growth companies (usually in the mid-cap space) and selling them when a pricing catalyst is realised.
Some of WAM Research’s current holdings include Redbubble Ltd (ASX: RBL), Elders Ltd (ASX: ELD), Breville Group Ltd (ASX: BRG) and Adairs Ltd (ASX: ADH). It uses the proceeds of these sales to fill a ‘profit reserve’, from which its fully franked dividends are funded.
The company’s most recent dividend came in at 4.9 cents per share, which was paid in April and was an increase from 2019’s interim dividend of 4.85 cents per share. If we annualise this payout, we get a dividend yield of 6.81% on the company’s share price (at the time of writing) of $1.44. If we include the value of WAM Research’s full franking, the grossed-up yield rises to 9.73%.
The best part (in my view) about this yield is how sustainable it is. In its latest update for July 2020, WAM Research advised investors that its profit reserve stood at 27.7 cents per share. That’s enough to fund the dividend at its current level for at least another 2½ years by my rough calculations.
Foolish takeaway
For this stupendous and yet sustainable yield, I think WAM research is a great ASX dividend share to invest in today. Especially so if we consider the current prospects for dividend income on the share market. It’s worth noting that WAM Research currently trades at a large premium to its underlying assets (probably as a result of this yield). Even so, it’s hard to turn down a 9%+ yielder today.
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Motley Fool contributor Sebastian Bowen owns shares of Ramsay Health Care Limited and WAM Research Limited. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Elders Limited and Ramsay Health Care Limited. 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.
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