In this era of low interest rates it can be hard to find ASX shares with dividend yields above 7.5%.
Dividend yields that are exceptionally high can be risky. It may just be a look back at old dividends and a dividend cut may be coming. The company may have an exceptionally-high dividend yield and it's not retaining much for re-investment. Perhaps the market thinks the earnings are risky.
With that in mind, here are some of the shares with the biggest dividend yields on offer:
WPP Aunz Ltd (ASX: WPP)
The advertising and media business has a trailing grossed-up dividend yield of 17%.
Even if the annual dividend were to be cut by a third, it would still have a very impressive double digit dividend yield. It's valued at a low multiple of its earnings and it has a high dividend payout ratio.
The key will be what happens over the next two to three years. Advertising spending in 2019 is expected to be flat, but WPP Aunz is expecting earnings per share (EPS) to decline by 5% to 10% in 2019.
It could be a dividend bargain. But it could also be a value trap, depending how the medium-term unfolds.
Naos Emerging Opportunities Company Ltd (ASX: NCC)
Naos Emerging Opportunities has a grossed-up dividend yield of 10%.
It's a listed investment company (LIC) that looks at the smallest businesses on the ASX, ones with market capitalisations under $250 million. It has a slant towards industrial businesses which can keep growing even if economic conditions in Australia aren't great.
Naos likes to have a small number of high-conviction holdings, which can add to volatility. Small caps are volatile enough.
Its performance is going to be quite different to the small cap benchmark, so it's best to think of this as a private fund that pays a big dividend that you can buy on the ASX.
It does have relatively high fees, but its total returns have been quite good since inception, supporting an attractive, growing dividend.
WAM Research Limited (ASX: WAX)
WAM Research has a grossed-up dividend yield of 9.4%.
WAM Research is one of the best LICs on the ASX in my opinion. It just focuses on the quality of the underlying business. It's not afraid to hold a lot of cash when necessary, and it's not afraid to own a lot of shares in the portfolio either, to diversify the risk.
It has generated very impressive returns since inception and it's outperforming so far in FY20. WAM Research has been using some of that profit to pay an ever-growing dividend to shareholders each year.
Foolish takeaway
Each of them have big dividends. WPP faces structural challenges, so I'm not looking to invest in it. Out of the three I'd probably go for the Naos LIC because it's trading at a discount to its underlying asset value whereas WAM Research is at a sizeable premium.
