An ASX share with a dividend yield of 10% might be sounding alarm bells to you (and for good reason). Even the biggest, most established ASX blue chip dividend shares like Commonwealth Bank of Australia (ASX: CBA) will only net you a grossed-up yield of around 7.85%. Anything beyond this is instinctively viewed as a yield trap.
But I've found two ASX listed investment companies (LICs) that I don't believe to be yield traps and both are currently offering grossed-up yields around 10%
WAM Research Limited (ASX: WAX)
This LIC is run by Wilson Asset Management – who are famous for their stable of LICs with big dividends. WAM Research is no different, offering a dividend of 9.7 cents per share, which translates to a grossed up yield of 10.01% on current prices. In addition, WAM Research has also delivered an annualised average return of 16.7% (including dividends) since 2010, which is likely to be a contributing factor to this LIC's current share price premium of 13% over the net tangible assets (NTA) per share. WAM Research invests in small- to mid-cap ASX stock that its management view as likely to appreciate – some of its current top holdings include the A2 Milk Company Ltd (ASX :A2M) and Xero Ltd (ASX: XRO)
Pengana International Equities Ltd (ASX: PIA)
This LIC is run by Pengana Capital Group Ltd (ASX: PCG) and looks beyond our shores to gather a portfolio of 30–50 global companies that are 'ethically-screened'. This means that any company involved in gambling, animal testing, tobacco or fossil fuels are excluded from PIA's investment mandate. Currently, 50% of the LIC's investment portfolio is in US-based companies, with a further 25% in Europe and 9% in Emerging Markets. Some top companies include Tencent, Cigna Corp and AON.
Pengana International Equities currently pays a 7 cent per share dividend, which gives it a grossed-up yield of 10% on current prices.
Foolish takeaway
Both of these LICs (in my opinion) would make attractive investment for any income investor or anyone who loves a big yield in general. Although I wouldn't count on payout consistency if there was a share market crash, it might be a good time to make some hay while the sun is shining.
