It's very hard to find shares anywhere in the world that offer both diversification and a good dividend yield. Index funds like iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS) have yields similar to what you can get in the bank these days.
In Australia, we are very lucky to have a group of businesses called listed investment companies (LICs) which invests on behalf of shareholders into other shares. Some LICs invest in mostly large caps whilst others invest completely index unaware.
Here are three LIC ideas for pleasing income:
Bki Investment Co Ltd (ASX: BKI)
Bki is a LIC that invests in some of the biggest companies that are on the ASX. It has outperformed the S&P/ASX 300 Accumulation Index over the past decade by 2.3% per annum.
Its top holdings are National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and Wesfarmers Ltd (ASX: WES). One major difference to the index is that only 2.5% of Bki's portfolio is devoted to BHP Billiton Limited (ASX: BHP) shares.
It currently has a grossed-up dividend yield of 6.54%
NAOS Absolute Opportunities Co Ltd (ASX: NAC)
Naos is an investment manager that runs a few different LICs. The Absolute Opportunities LIC invests in shares with market capitalisations usually between $400 million to $1 billion. I like the Naos LICs because they all have high-conviction portfolios, meaning the portfolios have a smaller number of positions compared to most other portfolios.
This LIC aims to increase the dividend every year, which it has done since listing. Over the past two years the portfolio has returned an average of 17.28%, before fees.
It currently has a grossed-up dividend yield of 7.43%.
WAM Capital Limited (ASX: WAM)
WAM Capital is the largest LIC run by Geoff Wilson and his team. It invests in undervalued growth companies and holds them until they reach the calculated valuation, then sells. The team have been extremely successful with this strategy as it has outperformed the index over the long-term.
Every six months WAM Capital increases the dividend at a rate faster than inflation. It currently has a grossed-up dividend yield of 8.78%.
Foolish takeaway
All three shares have proven to be good dividend payers. I'd definitely invest in these three over most other shares in the ASX20. At the current prices I'd probably go for WAM Capital as I like its cost structure better than the Naos LIC, even if it is trading at a big premium to the NTA.
