Ouch: WAM Capital shares crash 15% as dividend cut in half

The ASX is having a spirited end to the trading week so far this Friday. Earnings season has rolled on and is ending the week with a bang. One of the more interesting reports this session is from a popular ASX dividend share. Unlike most dividend payers this earnings season, this stock has just delivered a crushing 50% cut to its dividend. That popular ASX dividend share in question is none other than WAM Capital Ltd (ASX: WAM).

WAM Capital is a listed investment company (LIC) that has been on the ASX since 1999. Over this time, it has built up a reputation as a generous dividend payer. However, the company has struggled in recent years, with investors enduring a savage share price decline.

To illustrate, WAM Capital shares last topped out at about $2.50 a share back in 2017. Today, the company has opened sharply lower. WAM Capital shut up shop at $1.51 a share yesterday. But this morning, those same shares opened at $1.40 each before descending to $1.28 at the time of writing. That’s a one-day loss of 15.2%.

That puts this company’s losses over the past 12 months at 25.7%. Shareholders who have held on for the past five years are down a horrid 43.9%.

In other words, WAM Capital’s generous dividends have been the only thing saving investors’ returns. But now that looks set to change too.

WAM Capital shares plunge as dividend slashed 50%

As part of its latest earnings, released this morning, WAM Capital revealed that it can no longer afford to maintain the 7.75-cents-per-share dividend every six months. That’s the payout investors have been receiving on a biannual basis since FY 2020. Investors will receive a final dividend of 7.75 cents per share, partially franked to 60%, in October. But that will be the last of its kind, for at least a while.

In these earnings, WAM Capital has “announced an FY2027 full-year dividend target of 8.0 cents per share, comprising an interim dividend of 4.0 cents per share and a final dividend of 4.0 cents per share”.

This means that 2027’s payouts will be worth approximately half of the dividends that investors have become used to over the past six years or so. It is a calamitous and embarrassing moment for the company, whose investors will now enjoy the same record-low level of dividend income that they last received in 2009. As we’ve warned investors about, the dividends needed to be slashed because of the lack of profits to fund them. Here’s how WAM Capital justified it:

Since FY2020, the Board has maintained WAM Capital’s full year dividend at 15.5 cents per share. Over that period, the dividends paid by the Board exceeded the profits generated, drawing down the Company’s accumulated profits reserve. Maintaining the dividend at 15.5 cents per share is no longer sustainable with the profits reserve available.

WAM Capital has also told investors that they should not bank on getting 8 cents per share in dividends next year either, stating “the FY2027 dividend target is not a forecast or commitment of future dividends”. No wonder WAM Capital shares are copping a beating this Friday.

The post Ouch: WAM Capital shares crash 15% as dividend cut in half appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.