For investors looking to make their first investment, it's hard to know where to start. With thousands of companies on the ASX and many times more around the world, how do you choose?
A good place to start could be to invest in a listed investment company (LIC), these are companies that just invest in other companies and are managed by an investment team that will make the choices of when to buy and sell.
Two of the biggest LICs on the ASX are the Australian Foundation Investment Co.Ltd. (ASX: AFI) (AFIC) with a market cap of $6.5 billion and Argo Investments Limited (ASX: ARG) with a market cap of $5 billion.
However, when you look at their top holdings it's just most of the big businesses of Australia, which isn't terrible, but there isn't much growth expected over the next few years for the big end of town.
Perhaps it might be better to invest in a LIC that has a high dividend yield, is more diverse and hopefully will provide better returns. Here are three LICs that could fit the bill.
Clime Capital Ltd (ASX: CAM)
Clime Capital is an interesting LIC as it invests in large, medium and small Australian companies as well as investing in overseas companies. Its market capitalisation is $66 million, so it's very small, but that means it has more room to grow.
It has a grossed up dividend yield of 8.26% and pays dividends quarterly, which could help an investor's cashflow.
WAM Capital Limited (ASX: WAM)
WAM Capital is run by Geoff Wilson and his team, it has outperformed the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) over the short term and long term. With a market capitalisation of $1.33 billion, WAM Capital is still small enough to be as agile as it wants to be, as opposed to AFIC's much larger portfolio that is a slower moving ship.
WAM Capital has a grossed up dividend yield of 9.17% and its dividend has grown consecutively for the last 6 years. It also normally keeps around 30% of its assets in cash which puts it in a strong position. WAM Capital could be a good first investment.
WAM Research Limited (ASX: WAX)
WAM Research is another one run by Geoff Wilson and his team. It has somewhat similar investments to WAM Capital, but there are differences between the two portfolios.
This LIC is much smaller at $256 million, giving it more space to grow. WAM Research has a grossed up dividend yield of 8.34%, it has grown its dividend for 5 years in a row and had 25% of its assets in cash in its latest update.
Foolish takeaway
Out of the three LICs above, the two run by Geoff Wilson would be my pick. Providing a juicy dividend yield, dividend growth and capital growth is exactly what a Foolish investor starting out would benefit from.
It's a bonus if you can buy listed investment companies at a discount to the 'net tangible asset' figure – most LICs will provide a monthly update of what amount this is.
