The ASX share WAM Microcap Ltd (ASX: WMI) is one of the few stocks with a dividend yield of more than 10% that I’d be willing to own for the long-term.

I love passive income, but the higher the yield the less likely it is to be sustainable because the business is paying out such a large part of its profit each year.

However, WAM Microcap is a bit different to a regular business that sells products or services because it’s a listed investment company (LIC). In other words, it buys and sells shares to make money for shareholders.

It’s not looking within the S&P/ASX 200 Index (ASX: XJO) for opportunities though. It’s searching for the most exciting undervalued growth opportunities in the Australian microcap market.

Let’s explore why it’s such a compelling choice for dividends.

LICs need to produce returns

For a LIC to pay sustainable, large dividends, they need to generate good investment returns.

If a LIC’s portfolio generates a double-digit net return over a financial year, then it has essentially done enough to pay a 10% grossed-up dividend yield (including the franking credits).

LICs are not just passive index funds. They can invest very differently to an index, both in terms of the shares they buy and the prices they buy and sell at.

WAM Microcap’s hunting ground represents an area of the market that few fund managers look. There can be some excellent opportunities at the small end of the market because they can be mispriced for their potential and the business can deliver a lot of profit growth from a small base.

The ASX share’s portfolio has delivered an average return per year of 14.4% since inception in June 2017, before fees, expenses and taxes. That’s despite this decade being a tricky period for small-cap shares.  

I believe WAM Microcap’s investment team have the ability to continue making good returns to fund future dividends.

Large dividend yield

WAM Microcap’s board of directors has provided guidance that the business plans to pay an annual dividend per share of 10.7 cents for FY26. That translates into a grossed-up[ dividend yield of around 10.5%, including franking credits.

It has increased its annual dividend per share each year since FY18 (when it started paying dividends), aside from FY24 when it maintained the payout. That’s a strong record of consistency for investors.

The business has a profit reserve of 49.8 cents per share of profit which it built in previous years. That means it could pay the same dividend level for four and a half years without needing to earn any investment returns.

I think Aussies are missing out if they don’t have exposure to small-cap shares for both the diversification and potential returns. WAM Microcap can provide that exposure, along with a great dividend yield level.

There are also other ASX shares that could make great investments today to own for the long-term.

The post This 10% dividend yield stock is one I’m comfortable holding for the long-term appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Wam Microcap. 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.

DroneShield Ltd (ASX: DRO) has been one of the most talked-about defence technology shares on the ASX in the 2020s.

That attention is understandable. The company sits in a market shaped by drones, electronic warfare, national security, and the growing need to protect military and civilian assets from aerial threats.

And after a major share price decline, investors face a difficult question. Are DroneShield shares a buy, hold, or sell?

DroneShield shares have fallen hard

DroneShield shares are trading around $2.29 at the time of writing.

That leaves the stock down about 65% from its 52-week high.

A fall of that size can make investors nervous, especially in a growth share where expectations have been high. It also changes the valuation discussion.

According to CommSec consensus estimates, DroneShield is forecast to generate earnings per share of 2.6 cents in FY26, 4.3 cents in FY27, and 7.4 cents in FY28.

Based on the current share price, that puts the stock on a price-to-earnings (P/E) ratio of around 88 times FY26 earnings, 53 times FY27 earnings, and 31 times FY28 earnings.

The near-term multiples are still high despite the share price decline.

But the FY28 valuation does not look excessive to me if DroneShield can keep scaling and become a larger, more profitable defence technology business.

Why I would buy

I think DroneShield shares are a buy for investors with a high tolerance for risk.

The reason is the market opportunity.

Drones have changed the way governments, defence forces, airports, prisons, critical infrastructure operators, and security agencies think about protection.

They can be used for surveillance, disruption, smuggling, attacks, and battlefield operations. That creates demand for systems that can detect, track, identify, and respond to drone threats quickly.

DroneShield is trying to become a trusted provider in that market.

I also like that the business is not only about hardware. Increasing software revenue could improve the quality of the revenue base over time, especially if customers keep paying for upgrades, subscriptions, support, data, and system improvements.

That could make the business more valuable than a simple equipment supplier.

What investors need to watch

DroneShield still has plenty to prove. The company needs to keep winning contracts, delivering products, expanding capacity, and turning demand into profits. Defence customers can take time to make decisions, and contract timing can create uneven revenue.

Competition is another risk. Counter-drone technology is attracting attention globally, and larger defence companies may push harder into the market.

There is also valuation risk to consider. Even after a 65% fall, DroneShield is still priced for significant growth. If earnings disappoint, the share price could fall further.

That is why position sizing is important. I would view DroneShield as a speculative growth share rather than a core blue-chip holding.

Foolish Takeaway

I would call DroneShield shares a buy, but only for investors who can handle volatility.

The share price fall has made the valuation more reasonable, particularly if the company can deliver the growth currently expected over the next few years.

The counter-drone market appears to have a long runway, and DroneShield has a strong position in a field that is becoming more important to defence and security customers.

There will be bumps along the way. Contract timing, execution, competition, and valuation all need watching. Still, for patient investors willing to accept the risks, I think DroneShield shares are worth buying after this heavy fall.

The post Down 65%: Are DroneShield shares a buy, hold, or sell? appeared first on The Motley Fool Australia.

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• DroneShield shares crash another 7% today: Is this the end for the once-soaring defence stock?
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Motley Fool contributor Grace Alvino has positions in DroneShield. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield. 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.

A $500,000 ASX share portfolio could provide a very attractive passive income stream.

But the amount investors receive each year can vary significantly depending on the dividend yield they target and the types of shares they own.

A portfolio built around lower-yielding growth shares may produce less income today, while a higher-yielding portfolio may come with extra risks if the payouts are stretched.

That is why I think investors need to look beyond the headline yield and think carefully about the balance between income, quality, and growth.

So, how much could a $500,000 ASX share portfolio realistically pay in dividends?

Understanding the yield

A dividend yield shows how much income a share or portfolio pays each year compared with its value.

For an ASX dividend portfolio, the yield investors target can make a big difference to the income they receive. It can also change the type of shares they end up owning.

A 4% yield may sound modest, but it could come from businesses with stronger balance sheets, steadier earnings, or better long-term growth prospects. A 6% yield can produce more income upfront, although it may push investors toward shares with slower growth, higher debt, or less reliable payouts.

That is why I think 5% can be a good middle ground. It is high enough to generate meaningful passive income, while still leaving room to focus on quality and diversification.

On a $500,000 portfolio, a 4% yield would generate around $20,000 a year in dividends before tax and franking credits. While at 5%, the annual income would rise to about $25,000, and at 6% it would be around $30,000.

For me, the 5% option feels like a sensible target for many income investors because it balances income today with the need to own ASX dividend shares that can keep performing over time.

What could sit in the portfolio?

I would want a mix of defensive dividend shares, property income, and businesses that can grow dividends over time.

Telstra Group Ltd (ASX: TLS) could play a useful role because connectivity is woven into daily life. Mobile data, payments, work, entertainment, and communication all rely on reliable networks.

Woolworths Group Ltd (ASX: WOW) is another defensive name to consider. Grocery demand is more stable than many discretionary categories, which can help support dividends through different economic conditions.

For property income, HomeCo Daily Needs REIT (ASX: HDN) could be attractive because its portfolio is focused on everyday-needs retail, including assets linked to supermarkets, pharmacies, and essential services.

I would also leave room for dividend growth. Universal Store Holdings Ltd (ASX: UNI) and Lovisa Holdings Ltd (ASX: LOV) are more growth-focused retail shares, so they can be more volatile. But if their earnings continue to grow, their dividends could become more valuable over time.

Why growth still counts

Ideally, a dividend portfolio should grow as the years pass.

If a $500,000 portfolio grew by 5% per annum over 10 years, while dividends were banked separately, it could increase to around $815,000.

That larger portfolio could then produce much higher income. A 4% yield on $815,000 would generate around $32,600 a year, while a 5% yield would generate around $40,750 a year.

I think that shows why capital growth can be so meaningful for passive income investors.

Foolish takeaway

A $500,000 ASX share portfolio could produce a compelling income stream if it is built carefully.

I think a 5% yield is a sensible target because it could generate about $25,000 a year today while still leaving room to focus on quality, diversification, and dividend growth.

The best dividend portfolios can pay income now and become more valuable over time. That combination is what can turn a strong ASX portfolio into a much larger passive income stream in the years ahead.

The post How much could a $500,000 ASX share portfolio pay in dividends? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in Lovisa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended HomeCo Daily Needs REIT, Lovisa, and Universal Store. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.