When it comes to ASX dividend shares, there are few choices that can match WAM Capital Limited (ASX: WAM) right now for raw income potential.

WAM Capital isn’t an ordinary ASX dividend share though. It’s a listed investment company (LIC) that invests in mostly undervalued, mid-cap ASX shares with what WAM Capital calls a potential ‘catalyst’.  Once this catalyst has been realised by the market, WAM is normally inclined to sell the company. This strategy has worked very well for the LIC in the past. Since its inception in 1999, WAM Capital has returned an average of 15.7% per annum to its investors (before fees). A major part of these returns have come from the dividends WAM Capital has managed to dish out.

Since the global financial crisis in 2008, this LIC has managed to hold or increase its dividends every single year. On current prices, these are worth a 7.71% yield – or 11% grossed-up with full franking.

Can WAM Capital afford its 11% yield?

That’s hopefully the first question that comes to mind when you see a yield like 11%. Normally, this would indicate that the market views this yield as unsustainable and therefore a dividend trap. But listed investment companies are often treated a little differently by the market, so let’s probe a bit farther.

As at 30 April, WAM Capital’s major holdings include TPG Telecom Ltd (ASX: TPM), Cleanaway Waste Management Ltd (ASX: CWY) and Aristocrat Leisure Limited (ASX: ALL). It also had a cash weighting of 24.6% – which indicates a bearish outlook for ASX 200 shares in my view.

On a per share basis, this LIC’s net tangible asset’s (NTA) came to $1.47 – which is a long way from the current share price of $2.01.

So in other words, this yield is now looking even more impressive considering the share is trading for a 37% premium to its underlying value. If WAM Capital shares were trading at their NTA value, the dividend yield would be 10.54% or 15.06% grossed-up.

But here’s the kicker, WAM Capital’s last interim dividend came in at 7.75 cents per share. As of April, the LIC only had 6.1 cents per share left in its profit reserves. This tells us that WAM Capital is running out of gas in the tank. Unless things turn around soon (and it will have to be very soon), it doesn’t look like this company will be able to afford to continue paying its generous dividends at their current levels.

As such, I think there is a lot of risk in buying WAM Capital shares today for dividend income. Particularly since the share price is trading 37% above its underlying value, as this would effectively mean buying 63 cents worth of value for $1.

Thus, it’s a ‘no-deal’ from me.

More reading

• The TPG share price is on the up. A good long-term buy today?
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• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• How to turn $20,000 into $275,000 in 10 years with ASX 200 shares
• These were the worst performers on the ASX 200 last week

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Worley Ltd (ASX: WOR) share price is down by 4.41% today and sits at $10.19 per share at the time of writing. Worley (formerly Worley Parsons) is a global provider of engineering services to the energy, resources and chemical sectors. 

Why is the Worley share price under pressure?

Today, Worley released an investor presentation and also announced its plan to transition toward sustainable energy. The announcement has had a negative effect on the Worley share price so far.

In the presentation, Worley indicated that many of its customers are moving toward renewable energy, a move sped up by recent volatility in oil prices. The company announced that key customers had reduced capex on hydrocarbon investments by around 30%. However, it stated that it had experienced an “accelerating wave of renewable energy investments, supported by energy storage, decarbonization projects and gas as a transition fuel.”

Additionally, Worley has announced it will work to become more sustainable in the way that it provides services to customers. It has committed to work with customers to deliver projects more sustainably across the entire life cycle. The company announced that it aims to create a net zero road map for direct carbon emissions. It will do this while helping customers to reduce their emissions with sustainable solutions.

Worley also suggested that it will assess its involvement in carbon-intensive projects. This could see the company turning down projects that produce heavy emissions and has undoubtedly contributed to the drop in the Worley share price today. 

Worley’s plan to transition into sustainable energy will take place across all of the sectors in which the company operates. Some of the company’s initiatives will include decarbonisation, energy efficiency, low carbon hydrogen, renewable energy, distributed energy systems, biofuels, carbon capture and storage, nuclear power, waste to energy and the use of gas as a transition fuel. 

In its announcement, Worley also flagged that the impact of the coronavirus had created some supply chain issues. This had slowed some projects and likely added to the negative pressure on the company’s share price today.

The Worley share price is down 33% since the beginning of January and down 38% from its 52 week high of $16.45. 

More reading

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• Top brokers just upgraded these 3 ASX stocks to “buy”
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Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The CSL Limited (ASX: CSL) share price looks to have turned a corner today and is charging higher. In afternoon trade the biotherapeutics company’s shares are up 4% to $289.69.

Though, despite this gain, the CSL share price is still down 15.5% from its 52-week high.

Why is the CSL share price underperforming?

The CSL share price has come under pressure over the last couple of months due to concerns over its plasma collections. This is particularly the case in the United States, where the vast majority of its plasma is collected.

These collections are vital to the future production of its immunoglobulin and albumin products. This means that a significant decline in collections because of the pandemic could lead to CSL falling short of expectations in FY 2021 and FY 2022.

Should you be concerned?

While I think it is likely that CSL will have seen a decline in collections during the pandemic, I’m not convinced it will be material enough to impact its future results.

Especially given the high level of unemployment in the United States, which I suspect could lead to more people donating plasma than normal once the crisis passes.

One broker that isn’t concerned is Goldman Sachs. This morning the broker reiterated its buy rating and $336.00 price target on the biotherapeutics company’s shares.

This was in response to CSL’s announcement that it is taking up its option to acquire Vitaeris. It is a clinical-stage biotechnology company which is currently focused on the phase 3 development of a treatment for rejection in solid organ kidney transplant patients.

Goldman Sachs is particularly positive on CSL’s transplant franchise and sees a lot of potential in its pipeline.

It commented: “We believe the most compelling opportunities under development are within the Transplant franchise (clazakizumab, CSL842 and CSL964), for which we assign a total risk-adjusted valuation of A$24 per share (62% of total).”

In respect to clazakizumab, which comes over with the acquisition, Goldman estimates that it could generate peak non-risk adjusted sales of US$5.4 billion by FY 2032 and risk adjusted sales of US$1.3 billion. It places a 25% probability of success on this.

Should you invest?

While there is still a lot of work to do before clazakizumab is a bona fide product, it certainly does look like it has the potential to be a key driver of growth in the future. 

And it’s not the only product under development. CSL has a growing pipeline of potentially lucrative products which could underpin solid earnings growth over the next decade and beyond. It is because of this, that I think its shares deserve to trade at notable premium to the market average.

In light of this, I think the pullback in the CSL share price is a buying opportunity for long term focused investors.

More reading

• 3 companies with great intangible asset moats
• Why CSL, Harvey Norman, IPH, & Saracen shares are charging higher
• Why the CSL share price continues to trail the ASX 200
• ASX 200 jumps 2.4%, unloved shares keep rising
• CSL share price drops lower despite announcing a new acquisition

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. 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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