Dividend shares are a popular and tax-effective way to earn income on your money.
Carefully chosen, as providing shareholders with reliable income, dividend shares also have the potential to deliver substantial capital gains when held for a long periods of time.
Dividend shares don’t have the safety of term deposits, and the share market can be volatile, but those risks can be more than made up for by the return potential.
The Naos Emerging Opportunities Company Ltd (ASX:NCC) share price is trading at $1.20, close to 52-week low.
NCC is a listed investment company (LIC), primarily focused on investing in ASX stocks outside the ASX 100 index. Some of NCC’s holdings include ASX small caps like BSA Limited (ASX:BSA), Enero Group (ASX:EGG) and CML Group (ASX:CGR).
Since inception in March 2013, NCC has a strong record of long-term out-performance.
Source: NCC company filings
More recently, NCC has under-performed the wider share market, with the company putting it down to two factors…
1) NCC’s non-existent exposure to small cap resources, businesses which have performed very strongly over the past 6-12 months.
2) The lack of share price appreciation from some of the core positions within the NCC investment portfolio, something NCC is confident will resolve itself in the fullness of time.
NCC’s dividend has grown every year since inception with dividends usually paid on a six-monthly basis. To date all dividends have been fully franked.
Source: NCC company filings
NCC trades on a trailing fully franked dividend yield of 6.0 per cent.
Here are two other reasons why you might consider NCC as an investment opportunity.
1) NCC shares trade at a discount to net asset value. As at April 30, NCC listed its post tax net tangible asset value (NTA) at $1.25 per share. With NCC shares trading at $1.20, that’s a 4 per cent discount to its most recently published NTA.
2) Naos chief investment office Sebastian Evans recently purchased $39,156 of NCC shares, paying $1.255 per share. That increased his holding in the company to 1.211 million shares, currently valued at over $1.4 million. That’s real skin in the game.
As with any share market investment, patience is required. This period of under-performance may last longer.
NCC runs a very concentrated portfolio, comprising of just 9 positions. Almost inevitably that will mean returns will deviate from the wider ASX share market. Again, patience will be required, including riding out periods of volatility.
Over time, NCC has a strong track record of out-performance. If replicated, the NCC share price should march forward, over time. The 6 per cent fully franked dividend is the icing on the cake.
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