I think that the top quality listed investment companies (LICs) have the ability to provide an attractive combination of both capital growth and dividends.
LICs are managed by a fund manager or a team. An attractive feature of LICs is that you can buy a portfolio/basket of shares for a discount to the underlying value of the share – which is usually called the net tangible assets (NTA).
Finding a great manager capable of producing outperformance, with the LIC share price at a discount to its NTA, is an attractive mix in my opinion.
I think these two are leading options:
WCM Global Growth Ltd (ASX: WQG)
This LIC recently committed to a dividend growth policy, which will be attractive going forwards for investors looking for income. It has committed to growing its half-yearly dividend to 3 cents per share over the next couple of results. That’s a substantial increase to the recent 2 cents per share dividends it had been paying. An annual dividend of $0.06 per share would represent a dividend yield of 5% including the franking credits.
I also believe that the WCM investment team will be able to continue to deliver good long-term returns. The LIC is looking for global businesses that have growing competitive advantages. It’s the ‘direction’ of the competitive advantage that the WCM team believe is one of the most important factors for long-term outperformance, not just the size of the competitive advantage.
Another thing that WCM looks for is a corporate culture that is supportive of growing the competitive advantages and this could lead to helping the investment returns.
The WCM Global share price is valued at a 10% discount to the last weekly NTA update.
Future Generation Global Investment Co Ltd (ASX: FGG)
I like Future Generation Global. Not only does it make sense to me financially, which I’ll get to, but it also donates 1% of its net assets each year to youth mental health charities.
What does it invest in? It’s invested in the funds of globally-focused fund managers like Cooper, Marsico, Nikko, Caledonia and Munro Partners. Those fund managers work for free so that the LIC can enact its philanthropic donations.
The Future Generation Global portfolio is designed to offer solid returns but with lower volatility. Over the last five years it has delivered an average return per annum of 13.8% per annum.
Its share price is currently at a 9% discount to the pre-tax NTA at the end of November 2021.
There has been a suggestion that the annualised dividend could soon grow to perhaps 6 cents per share. That would translate to a dividend yield of 5.3% including the franking credits.
Summary thoughts
Both of these LICs are currently in my portfolio and I plan to add more shares this year if they stay at the current discounts to the NTA (or better). I think that WCM is more capable of producing stronger returns, but I like the philanthropic nature of Future Generation Global.
