The WAM Microcap Limited (ASX: WMI) share price is up 6% right now after announcing a special dividend for FY20.
A quick overview of WAM Microcap
WAM Microcap is a listed investment company (LIC) which invests in ASX shares with market capitalisations under $300 million at the time of purchase.
The LIC is operated by Wilson Asset Management (WAM), one of the best small cap managers in Australia in my opinion. Fund management firm WAM was founded by veteran investors Geoff Wilson. WAM operate a number of other LICs including WAM Capital Limited (ASX: WAM) and WAM Leaders (ASX: WLE).
FY20 result
WAM Microcap reminded investors that over the 12 month period to 30 June 2020 its investment portfolio outperformed the S&P/ASX Small Ordinaries Accumulation Index by 17.5% after rising by 11.8% (before fees, expenses and tax). WAM enable shareholders to benefit from this growth through the WAM Microcap share price growth as well as from the dividends it pays.
Since inception in June 2017, the WAM Microcap investment portfolio has increased by 15.9% per annum, outperforming the index by 10% per annum – again this is before fees, expenses and tax.
WAM Microcap said that it had a profit reserve of 28.7 cents per share at 30 June 2020 before the payment of dividends.
WAM Microcap dividend
The WAM Microcap share price seems to be rising after the board announced two dividends.
As expected, the LIC announced a final fully franked dividend of 3 cents per share, which is a 33.3% increased compared to a year ago. WAM Microcap also announced a special fully franked dividend of 3 cents per share.
WAM Microcap said that it is committed to paying an increasing stream of fully franked dividends as long as it has sufficient profit reserves and franking credits and it is within prudent business practices.
That means at the current WAM Microcap share price, the two end-of-year dividends amounts to a grossed-up dividend of 6%.
WAM Microcap share purchase plan (SPP)
WAM Microcap also announced a SPP for shareholders who want to increase their holding of the LIC. Investors will be able to purchase up to $30,000 of new shares without being charged brokerage.
Shareholders who participate will be entitled to receive the final ordinary dividend and the special dividend.
The WAM Microcap board intend to offer shares to professional and sophisticated investors at the same price and terms as the SPP.
The SPP will be priced at the WAM Microcap net tangible assets (NTA) at 31 July 2020. That may end up being a material discount to the current WAM Microcap share price. At the end of June 2020 the WAM Microcap NTA was $1.31 per share.
WAM Microcap said that the primary purpose of the capital raising is to increase the company's assets, increase its relevance to the market, improve the prospect of broker and research coverage, increase interest from financial planners and gain more access to market opportunities such as pre-IPO capital raisings.
Positions
At the end of each financial year, LICs reveal their investment positions. At 30 June 2020, WAM Microcap's biggest positions were: Infomedia Limited (ASX: IFM), City Chic Collective Ltd (ASX: CCX), Temple & Webster Group Ltd (ASX: TPW), People Infrastructure Ltd (ASX: PPE), Viva Leisure Ltd (ASX: VVA) and AMA Group Ltd (ASX: AMA).
Foolish takeaway
WAM Microcap has been a strong performer since inception. It had a great run between 31 March 2020 and 30 June 2020. Its portfolio's gross return was 32.9% over that three month period.
The LIC offers quite a large dividend, which is attractive in this COVID-19 era. Excluding the special dividend, it has an annual ordinary grossed-up dividend yield of 6% for new investors.
Depending on what the NTA was at 31 July 2020, it's quite likely I will participate in the SPP, even if it's just a relatively small purchase.
