This ASX dividend share has a 6% yield, but I'm still not buying

Here's why I wouldn't touch this high-yield share with a 10-foot pole.

| More on:
Woman on her laptop thinking to herself.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When an ASX dividend share has a fully-franked 6% dividend yield on the table, it's normally enough for most income investors to take a second look.

At all, a 6% dividend yield, especially one with full franking credits, isn't too common a sight on the ASX. To illustrate, not one of the dividend-heavy big four banks currently offers a yield over 5.7% right now.

Yet that's what the listed investment company (LIC) WAM Global Ltd (ASX: WGB) currently has on the table.

WAM Global is a LIC that is run by Wilson Asset Management. It attempts to invest in a portfolio of globally sourced "compelling undervalued growth companies" on behalf of its shareholders.

This 6% dividend yield comes from the company's last two dividend payments. These were the October final dividend of 5.5 cents per share, and the May interim dividend, also worth 5.5 cents per share. That total of 11 cents per share in 2022 was an increase over the 10 cents per share investors enjoyed in 2021.

Yet I'm not buying this company. In fact, I'm not even tempted. Here's why.

Why I wouldn't buy WAM Global, even with a 6% dividend yield 

There are two main reasons. The first is performance. WAM Global first IPO-ed back in mid-2018, for a price of $2.20 per share. Today, almost five years later, the company's share price remains well below its IPO price, at $1.82 at market close on Friday. That's a capital loss of more than 16%:

Created with Highcharts 11.4.3Wam Global PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

According to Wilson Asset Management, the company's underlying portfolio has delivered an average of 4.9% per annum (as of 31 December 2022) since IPO. But that doesn't help the capital returns investors have actually enjoyed from their shares.

That figure also doesn't include WAM Global's fee, which is the second reason.

WAM Global charges an annual management fee of 1.25%, plus a performance fee. That's well on the higher end of what managed investments typically charge on the ASX.

By comparison, the Vanguard Australian Shares Index ETF (ASX: VAS) index fund has a fee 12.5 times cheaper than WAM Global at 0.1% per annum. Yet it's vastly outperformed this LIC over its lifetime.

So I'll be saying no to WAM Global's 6% dividend yield. A big yield doesn't mean much when your capital base has been eaten away by lacklustre performance and fees.

Motley Fool contributor Sebastian Bowen has positions in Vanguard Australian Shares Index ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

Buy these high-yield ASX shares for major passive income in 2025 and beyond

Let's see why analysts think these shares could be great buys for income investors.

Read more »

A happy elderly woman smiles and cheers as she looks at good investment news on her laptop.
Dividend Investing

2 ASX dividend champions that never cut payouts

These two dividend stocks have consistently rewarded investors. 

Read more »

Happy couple enjoying ice cream in retirement.
Dividend Investing

Aiming for rock-solid retirement income? I'd buy these two ASX shares

These stocks offer compelling levels of income for retirees.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Dividend Investing

Invested in ASX MOAT or other VanEck ETFs? It's dividend day!

Show us the money!

Read more »

A couple working on a laptop laugh as they discuss their ASX share portfolio.
Dividend Investing

Here are 2 ASX income stocks with yields above 7%

These businesses are providing investors with significant income.

Read more »

Man holding fifty Australian Dollar banknote in his hands, symbolising dividends, symbolising dividends.
Dividend Investing

Want passive income? Check out these ASX dividend shares

Analysts think these shares could be perfect for passive income investors.

Read more »

A couple stares at the tv in shock, with the man holding the remote up ready to press a button.
Dividend Investing

Why Macquarie expects this high-yielding ASX All Ords stock to charge higher AND boost its dividends

Looking for a quality ASX dividend share with strong growth potential? Read on!

Read more »

A miner in a hardhat and high visibility clothing makes a thumbs up symbol.
Resources Shares

4 reasons to buy Rio Tinto shares today

A leading expert forecasts strong growth potential for Rio Tinto shares.

Read more »