The biggest benefit of the listed investment company (LIC) structure is that investment managers can pay steadily-rising dividends from both the dividends received and capital growth.
LICs can be particularly useful to get high dividend yields, that's why these two LICs are good potential choices for income investors:
Naos Emerging Opportunities Company Ltd (ASX: NCC)
This LIC targets ASX shares with market capitalisations under $250 million, essentially the smallest shares on the ASX.
I believe the small cap world is the best place to generate outperformance because you're not competing with as many well-funded investors and those small businesses have much better growth potential because of their small size.
It's been a tough year for the Naos portfolio, but its dividend streak remains – it has grown its dividend every year since the second half of FY13.
If Naos Emerging Opportunities Company can continue to sustainably grow its dividend with its high-conviction portfolio then the grossed-up dividend yield of 10% could be very good. It's currently trading around the value of its underlying assets, so it's not overly expensive or a bargain.
WAM Research Limited (ASX: WAX)
WAM Research looks for small and mid-cap businesses where it can see a catalyst to improve the share price, otherwise it will sit in cash.
With volatility increasing the WAM Research investment team increased the cash position to 53.3% of the portfolio. We'll find out in a few days if WAM Research has put some of that cash to work.
It has increased its dividend each year since the GFC and handsomely outperformed the market since July 2010.
WAM Research currently has a trailing grossed-up dividend yield of 10.2%. However, WAM Research continues to trade at a hefty premium to its underlying assets.
Foolish takeaway
A dividend yield of 10% is extremely attractive for income investors. If both Naos and WAM Research can continue steadily increasing their dividends then both would be good options for income. However, only time will tell if that's going to happen. Falling share markets don't help!
