When scanning the Australian Securities Exchange (ASX) for dividend-paying stocks, investors will find a diverse landscape offering various income streams. Some companies manage to present exceptionally high dividend yields, often a result of a favourable combination of a low price-to-earnings (P/E) ratio and a generous dividend payout policy.
However, there’s a particular category of ASX dividend stocks that warrants a slightly separate consideration: Listed Investment Companies (LICs). These entities operate on a different model compared to traditional businesses that generate revenue from selling goods or services. Instead, LICs profit by investing in other shares, aiming to generate returns through capital appreciation and dividends from their underlying holdings. This allows them to build up accounting profits, from which they can distribute a portion annually while retaining some gains in a profit reserve to weather market downturns.
One such LIC that stands out as a compelling ASX dividend stock pick is WAM Microcap Ltd (ASX: WMI). Its appeal can be attributed to three key strengths.
Impressive Investment Returns
A cornerstone of WAM Microcap’s success lies in its strategic focus. The company actively seeks out “the most exciting undervalued growth opportunities” within the Australian microcap market. Microcap shares, being at an earlier stage of their growth trajectory, possess significant potential for substantial returns. It’s considerably easier for a business to double its revenue from $10 million to $20 million than it is to achieve the same feat when starting from $1 billion.
WAM Microcap’s investment approach, combined with the size of the companies it targets, has proven highly effective in generating returns. Since its inception in June 2017 up to February 2026, the portfolio has delivered an average annual return of 15.4%. This performance significantly outpaced the small-cap benchmark by approximately 7% per annum, even before accounting for fees, expenses, and taxes. The core of the WAM strategy involves investing in businesses exhibiting strong growth potential and possessing a clear catalyst that could drive their share prices higher. Such impressive returns are fundamental to the company’s ability to offer both substantial dividends and capital growth to its shareholders.
Large and Growing Dividend Yield
WAM Microcap has demonstrated a consistent commitment to increasing its annual dividend payouts. Since the financial year 2018, the company has steadily grown its annual distribution each year. The only exception was in FY24, when the payout was maintained at 10.5 cents per share. Looking ahead, the LIC anticipates a modest 1% increase in its annual payout for FY26, bringing it to 10.7 cents per share.
At the time of writing, this translates to a potential grossed-up dividend yield of approximately 10.25%, when factoring in franking credits. This represents a strong starting dividend yield, and there’s a solid prospect for continued growth in future distributions.
Sizeable Profit Reserve
A significant factor contributing to WAM Microcap’s reliability as a dividend payer is its substantial profit reserve. This reserve acts as a buffer, enabling the company to maintain its dividend payouts even during periods of market volatility or reduced profitability. As of 27 February 2026, WAM Microcap had accumulated a profit reserve of 55.4 cents per share. This figure provides the company with sufficient accounting profits to cover roughly five years of dividends at the current payout level, even in the absence of any further profit generation during that timeframe.
Considering these factors, WAM Microcap presents itself as a highly attractive investment. The recent market movements, which saw the stock drop by 13% since mid-January 2026, may present a favourable entry point for investors.
Further Investment Considerations
For those considering an investment in WAM Microcap Limited, it’s prudent to conduct thorough research and consider a broader investment strategy.
- Diversification: Ensure that any investment in WAM Microcap fits within your overall portfolio diversification strategy.
- Risk Tolerance: Understand your personal risk tolerance, as microcap stocks can be more volatile than larger-cap investments.
- Market Conditions: Stay informed about broader market conditions and their potential impact on LICs and the microcap sector.
Investors seeking to explore other opportunities within the ASX dividend space might also be interested in:
- ASX dividend shares offering yields exceeding 7%.
- Strategies for investing $10,000 with the aim of achieving a 15% dividend yield.
- Top-rated ASX dividend income stocks for March 2026.
