The fund manager Naos Asset Management has revealed two unloved ASX growth shares in its portfolio that it believes have compelling bull cases.

There are a number of things that the investors at Naos look for when deciding on a potential opportunity.

It's looking for businesses that are good value with long-term growth potential.

The portfolio is about finding quality over quantity. Naos' strategy is to invest for the long-term, it isn't a short-term trader. It doesn't mind holding fairly illiquid ASX shares as long as they can generate good performance.

Naos ignores the index – it invests in whichever investments that look promising. The fund manager provides pure exposure to 'industrial' businesses, though this is a wide category. It invests with an ESG overlay. That means investments need to be satisfactory when it comes to environmental, social and governance factors.

Every month the listed investment company (LIC) NAOS Ex-50 Opportunities Company Ltd (ASX: NAC) releases an update about how its portfolio is going and some thoughts on some of the ASX growth shares.

Here are two that featured this month:

Step One Clothing Ltd (ASX: STP)

Step One describes itself as a leading direct-to-consumer pure online retailer for men's underwear. That underwear is a range of high quality, organically grown and certified, and ethically produced products.

The Step One product is one that the Naos team have been using because they believe it's best of breed. It's one of the few on the ASX that Naos could say that about. Naos has been analysing the business in detail since it listed half a year ago.

Naos noted that within the last five years, Step One has gone from essentially $0 in revenue to potentially around $75 million in annual sales of men's underwear, mainly in Austrlaia and the UK.

The ASX growth share's initial public offering (IPO) price was $1.53 and Naos bought some shares at $2.25 in early December.

However, a business update in December said that revenue growth would be 1% to 5% higher than the prospectus forecast of 19.9% for FY22. After that update, the shares fell back to the IPO price.

Naos suggested the heavy share price reaction showed the update was well below the markets' "very bullish expectations" with some shareholders perhaps selling until they see more evidence of consistent growth again.

The fund manager added to its Step One investment after the trading update. Regarding the bull case, Naos said that the business can continue to grow at a reasonable rate over the coming years thanks to geographic and product expansion.

Urbanise.com Ltd (ASX: UBN)

This ASX growth share is another that has seen its share price fall. Over the last month, it's down by more than 20%.

Naos explained that Urbanise.com fell sharply after what some considered to be an abrupt exit of the CEO and the search for a replacement.

The fund manager believes that what has most likely unnerved the market is the risk that the company doesn't convert on its immediate sales pipeline and subsequently requires a capital raising. Naos doesn't think it would be a major issue if that happened.

The reason for that confidence is the assumption that growth rates (especially in the strata division) continue to be at least 20% per annum.

Naos thinks that company needs to focus on its strengths and uses a strategy that produce tangible results.

It is the fund manager's view that Urbanise.com has a dominant position within the strata space and must focus on achieving a market share of more than 65% of a market that has recurring revenue of around $40 million per annum in the shortest time possible.

The current valuation of annual recurring revenue (ARR) to the market capitalisation of "just" five times suggests to Naos that there is little faith from the market that the company can grow in the medium-term.

But, in the fund manager's opinion, if the company can demonstrate it can grow at around 20% per annum then the multiples applied to a business to business (B2B) enterprise software as a service (SaaS) business is likely to be significantly higher.

The post 2 unloved ASX growth shares that have good potential: expert appeared first on The Motley Fool Australia.

Ben Miller, portfolio manager from Naos Asset Management, has outlined three principles when looking at smaller companies when targeting sustainable and growing dividends over time.

Naos has three investment listed investment companies (LICs) that are looking at smaller and microcap ASX shares, including Naos Emerging Opportunities Company Ltd (ASX: NCC) and NAOS Ex-50 Opportunities Company Ltd (ASX: NAC).

These are three principles that Mr Miller talked about:

Free cashflow

The first point was that the ability of a company to compound capital comes down to how a company utilises or re-invests a portion of its free cashflow. That could be acquisitions, re-investing into new operations, starting new divisions, reducing debt or building a bigger cash pile for the future.

A business that is paying out cash at the expense of growth of the business isn't helping the long-term quality of that company.

Naos said that it likes to see capital-light businesses allocate some free cashflow to strategic and balance sheet initiatives as well as paying a dividend.

Mr Miller said that that a company that is generating sustainable income for investors should generally have a higher free cashflow than dividends.

Payout ratio

ASX listed companies have quite high dividend payout ratios compared to international shares – ASX payout ratios have been rising over the longer-term and play a factor in total shareholder returns according to Naos.

Mr Miller said that whilst there are company or industry specific, or even ownership specific, factors that may vary results, a general principle is that a very high dividend payout ratio can mean that dividends might not be sustainable over the longer-term.

When a business retains some profit, that can be a risk mitigation factor in the future if there's something like a recession.

He also pointed out that a high dividend payout ratio may mean that businesses aren't re-investing enough to stay ahead of the competition.

Mr Miller made the following comments about insights regarding boards:

A payout ratio can also provide investors with an insight into the intentions of the Board of directors. A very high payout ratio may highlight elements of a short-term focus and/or a volatile dividend profile may highlight elements of a lack of visibility around the long-term strategy of the business. As a general rule of thumb, the market doesn't look favourably on cuts in dividends amounts without appropriate justification.

In our opinion, a capable Board is one which prudently builds the retained earnings balance at a rate greater than the dividend payments but is equally able to pay a steadily growing stream of dividends over the long term. By doing so, you are giving yourself a buffer in case of unexpected losses/impairments and are able to demonstrate good level of capital management competency upon which shareholders can depend.

Financing cashflows

Mr Miller also pointed to the fact that the cashflow statement should be the first thing that investors look at because it's harder to "muddy the water".

Naos pays particularly close attention to the financing cashflow section of the balance sheet.

The investment manager doesn't like to see to businesses are regularly borrowing money without paying it back.

Sometimes a business can need to use borrowings for acquisitions or funding working capital. But a company that is living on debt and not generating free cashflow can lead to dividend cuts and a possible capital raising.

On this point, Mr Miller said:

A quick way to interpret the sustainability of the funding of dividends would be to compare dividend growth to debt growth. Artificially 'holding up' a dividend through debt is likely not a sustainable capital management decision.

Final thoughts

Mr Miller pointed out that avoiding yield traps is just as important as finding a good sustainable dividend.

He said that the compounding financial growth for a successful small company can translate into substantial dividend growth over time.

The post 3 factors for sustainable dividends from small ASX shares appeared first on The Motley Fool Australia.

There are some ASX shares worth buying and owning according to fund manager Naos Asset Management.

What is Naos Asset Management's investment approach?

Naos is led by chief investment officer (CIO) Sebastian Evans. NAOS Ex-50 Opportunities Company Ltd (ASX: NAC) is one of the listed investment companies (LIC) operated by Naos.

That particular LIC generally looks at businesses with market capitalisations between $250 million and $6 billion. That's what Naos deems to be a 'mid-cap'.

The fund manager has a number of investment focuses. It looks for businesses that are good value with long term growth potential. With its portfolio, Naos believes it's better to have a quality portfolio rather than numerous holdings. That's why it only holds around 10 positions in each fund, with each ASX share representing a high-conviction position.

Naos invests in the small cap ASX shares and mid caps for the long-term. It considers the performance and the liquidity of its positions whilst ignoring the index. Performance can sometimes be quite variable when compared to the index.

It looks to invest purely in industrial companies whilst also considering the ESG factors (environmental, social and governance).

Here are three ASX shares worth owning, according to Naos:

Objective Corporation Limited (ASX: OCL)

Naos describes Objective Corporation as a business that's founder led and provides specialist software for regulated industries such as government, councils and financial services. The fundie says that Objective has mission critical software, built on providing improved governance, service delivery and workflow-process efficiency.

The fund manager says Objective Corporation is a global leader in the space, with over 1,000 customers and 10 product offerings across many countries.

The ASX share held its annual general meeting recently and released a detailed presentation. Whilst there were no new comments provided, Naos thought there were a few interesting comments that supported the view of long-term growth of the business. One comment related to FY21 guidance being reiterated for "material growth in revenue and profitability". Another comment was about how acquisitions remain a core part of the strategy. Finally, more detail was provided about how the integration of iTree, together with the recent product launches of Gov365 and Objective Build is progressing.

Naos said that with annualised recurring revenue (ARR) now standing at $53 million, the fundie believes the ASX share is on target to achieve, or even exceed, the long term ARR ambition of more than $127 million.

Eureka Group Holdings Ltd (ASX: EGH)

According to Naos, Eureka Group is a provider of quality and affordable rental accommodation for independent seniors within a community environment. Eureka owns 30 villages and manages a further nine villages with a total of more than 2,000 places across Queensland, Tasmania, South Australia, Victoria and New South Wales.

Eureka recently held its annual general meeting (AGM) and the ASX share gave a market update in early November which included FY21 earnings before interest, tax, depreciation and amortisation (EBITDA) guidance of $9.8 million to $10.2 million. This equates to growth of 21% to 26% compared to the prior corresponding period. Occupancy has remained above 95% and the business still wants to sell non-core assets, which will provide the funding for organic growth and acquisition opportunities that Eureka is targeting.

The fund manager believes Eureka has multiple levers that can be pulled to help earnings growth at a significant rate going forward, and when overlaid with the current industry tailwinds, Naos thinks Eureka will be highly attractive to investors, particularly in this low interest environment as investors seek returns.

Experience Co Ltd (ASX: EXP)

Experience Co is a business that is one of the largest adventure tourism businesses with experiences like tandem skydiving, indigenous experiences and tours to the Great Barrier Reef. The company currently has numerous locations throughout Australia and New Zealand.

Naos said that with many of the domestic state borders being opened, or expected to be opened in the near future, Experience Co will have a strong tailwind from this leading into the key summer holiday season.

The Australian operations are currently operating at between 30% to 40% capacity compared to the prior corresponding period. Naos believes there is significant earnings potential from greater domestic demand which may lead to greater profit leverage. The fund manager thinks Experience Co will emerge with a much more efficient business, lower costs and a greatly reduced commission model to third party sellers which may result in EBITDA being significantly higher than the results it generated under the previous management's strategy.

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There are some ASX shares worth buying and owning according to fund manager Naos Asset Management.

What is Naos Asset Management's investment approach?

Naos is led by chief investment officer (CIO) Sebastian Evans. NAOS Ex-50 Opportunities Company Ltd (ASX: NAC) is one of the listed investment companies (LIC) operated by Naos.

That particular LIC looks at businesses with market capitalisations between $250 million and $6 billion. That's what Naos deems to be a 'mid-cap'.

The fund manager has a number of investment focuses. It looks for businesses that are good value with long term growth potential. With its portfolio, Naos believes it's better to have a quality portfolio rather than numerous holdings. That's why it only holds around 10 positions in each fund, with each ASX share representing a high-conviction position.

Naos invests in the small cap ASX shares and mid caps for the long-term. It considers the performance and the liquidity of its positions whilst ignoring the index. Performance can sometimes be quite variable when compared to the index.

It looks to invest purely in industrial companies whilst also considering the ESG factors (environmental, social and governance).

What are some of the ASX shares that it thinks are opportunities?

In its latest monthly update for 31 October 2020, Naos gave the latest commentary for some of its ASX share positions:

Objective Corporation Limited (ASX: OCL)

According to the ASX, Objective Corporation has a market capitalisation of $1.23 billion.

Naos describes Objective as a founder led enterprise software company providing specialist software for regulated industries such as government, councils and financial services. Objective has mission critical software, built on providing improved governance, service delivery and workflow combined with process efficiency.

In the FY20 result Objective Corporation grew revenue by 13% to $70 million and increased its net profit after tax (NPAT) by 22% to $11 million.

In FY21 Objective Corporation said it's expecting a material lift in revenue and profitability. It's also expecting to increase its market reach and invest further in broadening its offering to every customer.

MNF Group Ltd (ASX: MNF)

According to the ASX, MNF Group has a market capitalisation of almost $400 million.

MNF is described by Naos as a founder led software company, which specialises in proprietary digital network infrastructure for voice communications. The fund manager says that with 'next generation' networks in Australia, New Zealand and Singapore, MNF provides voice carriage and value-added software services to some of the world's largest software companies and wants to expand further in the APAC region.

Naos said that, over the years, the valuation multiple applied to the ASX share has slowly reduced even though, in Naos' view, the earnings of the business has increased in quantum and predictability. The fund manager firmly believes that the key reason for this is due to the increasing complexity of the MNF business which isn't necessary in Naos' eyes, especially because this complexity is due to a number of small business units that contribute to a minority of the earnings. Over the next eight months Naos will be looking to the board of MNF to address this via a divestment or demerger of the two operating divisions. MNF's Singapore network launches commercially in March 2021 and the fund manager will be paying close attention to the types of clients MNF has been able to sign up.

People Infrastructure Ltd (ASX: PPE)

According to the ASX, People Infrastructure has a market capitalisation of $320 million.

Naos describes People Infrastructure as a founder led provider of specialist staffing solutions, mainly to the healthcare and IT industries. The fund manager said growth in the industry is being driven by demand for more flexibility in working hours by both staff and employers. The ASX share has over 3,000 clients including Wesley Mission, Healthscope and NSW Health.

The fund manager will be watching for People Infrastructure to deploy its capital to cement its position as the leading provider in its respective markets, together with increasing the exposure to high growth industries such as home care.

The post 3 little-known ASX shares rated as buys by fundie appeared first on The Motley Fool Australia.

It's a listed investment company (LIC) that aims to invest in mid-cap shares that are outside of the ASX 50, generally with market capitalisations of between $400 million to more than $1 billion.

Some of the biggest shares on the ASX are definitely not the best to own for growth, like Australia and New Zealand Banking Group (ASX: ANZ) and Telstra Corporation Ltd (ASX: TLS).

I really like some of its holdings including Reece Ltd (ASX: REH) and MNF Group Ltd (ASX: MNF). These are quality businesses with long-term prospects and international growth potential.

Naos likes to hold a smaller number of high-conviction ideas. Why hold your 40^th best idea? At the end of October 2018, it had 13 long positions. I like that the holdings completely ignore the index.

Since inception in November 2014 its portfolio has returned an average of 12.07% before fees but after expenses, it has outperformed the S&P/ASX 300 Industrials Accumulation Index by an average of 6% per year in this time.

The dividend has increased every year since FY15, it's nice to receive a growing stream of dividends in this era of low interest rates, particularly with a grossed-up dividend yield of 8.5%. As long as Naos can continue to generate double-digit long-term returns then the dividend should be able to keep growing.

Foolish takeaway

At the end of last month it had a pre-tax NTA of around $1 and the shares are currently trading at $0.91, so it's likely trading at a decent discount to its underlying value.

However, with a higher management fee than its sibling Naos LICs, I would prefer to invest in Naos Emerging Opportunities Company Ltd (ASX: NCC) or NAOS Small Cap Opportunities Company Ltd (ASX: NSC) at the current prices.

The post This LIC has a huge 8.5% dividend yield appeared first on The Motley Fool Australia.

It's currently trading at a share price of $0.74 and has just switched its dividend payments to a quarterly payout of 1.35 cents per share, equating to an annual payment of 5.4 cents – suggesting a grossed-up yield of 10.4%.

Most shares that trade with a grossed-up dividend yield of 10% or more are a yield trap. Just think of what happened with Telstra Corporation Ltd (ASX: TLS).

However, with Naos it could well be sustainable. Firstly, based on the October 2018 update it was trading at a discount of more than 12% to its underlying assets. If it was trading at its underlying value then the gross yield would be just over 9% – this sounds more sustainable.

Second, a key objective of Naos is to pay 'sustainable growing stream of fully franked dividends' and long-term capital growth.

If Naos is able to replicate the long-term performance of its other LICs then it could achieve mid-teen investment returns before fees over the long-term. Whilst NAOS Small Cap Opportunities Company invests in different shares to NAOS Ex-50 Opportunities Company Ltd (ASX: NAC) and Naos Emerging Opportunities Company Ltd (ASX: NCC) the same effective strategy is used.

That strategy is to ignore the index, go for quality over quantity with only high-conviction choices, only invest in industrial businesses and invest for the long-term. It certainly ticks all the boxes for the right tactics to beat the market. What this translates to is a portfolio of around 10 quality shares.

I like the picks the Naos has made such as MNF Group Ltd (ASX: MNF) and Over The Wire Holdings Ltd (ASX: OTW).

Whilst it has a lower level of cash compared to some other LICs, its underlying holdings are in good shape. Naos said that only two holdings have net debt positions and it expects those to become net debt free within two years.

The investment team have focused on shares that have identifiable tailwinds which are not tied closely to global developments and volatility.

Of course, Naos will have to generate decent returns to maintain that dividend yield over the next few years.

Foolish takeaway

Naos has slightly higher management fees than the typical LIC, but over the long-term it could generate better net returns, which is what we should all be after as investors. If you're a dividend investor then this Naos LIC could be a good pick for part of your portfolio for a long-term investment.

The post Here's an ASX dividend share with a HUGE 10% yield appeared first on The Motley Fool Australia.

It has a bias towards industrial businesses and looks to keep a concentrated portfolio of high-conviction ideas. At the end of September 2018 it had 12 holdings and 7.2% of the portfolio was cash. I like the strategy of only investing in shares you really believe are good ideas.

Over the past three years its portfolio has delivered an average return per annum of 16.76% after expenses, but before fees. There are few investment managers that have generated as strong of a gross performance as this over the past three years on the ASX.

Some of its current key investments include Reece Ltd (ASX: REH) and Helloworld Travel Ltd (ASX: HLO), both of which I think have good growth potential.

A key reason to consider this Naos LIC is that it aims to pay out a steadily-growing dividend. It has indeed paid out a growing dividend since the second half of FY15. It has recently switched to paying dividends quarterly, which should help shareholders' cashflow.

It currently has a grossed-up dividend yield of 7.6%.

Some investors may not like the fees compared to some of the old LICs, however its benchmark was recently changed to the more relevant S&P/ASX 300 Industrials Accumulation Index.

Foolish takeaway

Based on the just-announced September 2018 NTA update, it's trading at a sizeable 10.6% (or perhaps slightly more now) discount to the pre-tax NTA. Investors focused just on income could consider this LIC as part of a portfolio of dividend shares.

The post Is this the best LIC on the ASX for retirement income? appeared first on The Motley Fool Australia.

That's why I think many investors focused on income should consider listed investment companies (LICs). The structure allows these companies to pay out capital gains & income received out as a regular dividend.

Here are three LICs with attractive dividend yields:

NAOS Ex-50 Opportunities Company Ltd (ASX: NAC)

This LIC is run by Naos and aims for businesses that are mid-to-large caps, but outside of the top ASX 50, as the name suggests.

Its portfolio has been successful with this hunting ground, it has delivered average annual returns of 18.1% over the past three years, after expenses but before fees.

The solid returns have allowed the LIC to increase its dividend each year since the second half of FY15. It currently has a grossed-up dividend yield of 7.4%.

WAM Leaders Ltd (ASX: WLE)

WAM Leaders is operated by the high-performing Wilson Asset Management investment team. This particular LIC also focuses on the larger end of the ASX with most of its top holdings being recognisable blue chip names.

Over the past year its portfolio grew by 17.2%, outperforming its benchmark by 1.8%. The other WAM LICs have a good record of regularly increasing the dividend and WAM Leaders could be another pleasing dividend payer.

It currently has a grossed-up dividend yield of 6%.

Whitefield Limited (ASX: WHF)

Whitefield is one of the long-running LICs of the ASX, it's been going since 1923. Over the past two decades it has grown or maintained its dividend every single year – this is an impressive record.

Its top holdings fairly closely resembles the top of the ASX Index, however there are differences and it has been one of the top-performing large cap focused LICs according to Wilsons.

It currently has a grossed-up dividend yield of 5.4%.

Foolish takeaway

None of the above LICs are among my favourite due to their investment focus, but they are all pretty good options. At the current prices if I had to choose one it would be Naos due to its medium-term performance and the discount to the NTA.

The post 3 LICs with high dividend yields appeared first on The Motley Fool Australia.

The LIC reported a headline net profit figure of $3.9 million for FY18, which was a 259% increase compared to FY17.

Its portfolio produced a 10.25% performance post all operating expenses, but before fees, in FY18. Since inception its portfolio has returned an average of 15.21% per annum post all operating expenses, but before fees, which is a solid return.

The total year dividend increased by 5% to 5.25 cents, fully franked. This means it currently offers a grossed-up dividend yield of 7.4%. Total shareholder returns (TSR) for the LIC for the year was a negative 2.9% due to the increased discount to the LIC's pre-tax NTA.

During the year it changed its name to better reflect the mid-cap investment strategy. The LIC is also changing it benchmark from the RBA cash rate plus 250 basis point to the S&P/ASX 300 Industrials Accumulation Index, which is a more appropriate benchmark.

Pleasingly for retirees, the LIC is increasing its dividend frequency to every quarter which means it now offers a more frequent income stream.

Two of the best performers for the portfolio were Elders Ltd (ASX: ELD) and MNF Group Ltd (ASX: MNF).

Naos likes to run a concentrated portfolio of around 10 to 15 positions, which can lead to significant underperformance or outperformance in any given year. However, over the longer-term it can lead to strong returns if stock selection is done well.

Foolish takeaway

NAOS Ex-50 Opportunities Company is currently trading at a 9% discount to the pre-tax NTA at the end of July 2018, which is a pretty attractive discount. Whilst it isn't my favourite Naos LIC, I do think it can have a place for retiree portfolios and income-seekers.

The post This LIC now offers a large 7.4% yield appeared first on The Motley Fool Australia.

There isn't a 'right' answer to this question. However, Rachel Folder, an analyst from Naos Asset Management, has written an article about how high-conviction portfolios will likely outperform the market over the long-term.

Naos runs a few successful listed investment companies (LICs) like Naos Emerging Opportunities Company Ltd (ASX: NCC) and NAOS Ex-50 Opportunities Company Ltd (ASX: NAC). Both of these LICs have outperformed the ASX index since inception before fees and had a minimal number of holdings, usually between 10 to 15.

Ms Folder mentioned one of Warren Buffett's best quotes: "A lot of great fortunes in the world have been made by owning a single wonderful business.  If you understand the business, you don't need to own very many of them."

Benjamin Graham advocated 10 to 30 holdings whilst Warren Buffet suggested five to ten.

Here are some reasons Ms Folder suggested for holding a small number of shares:

Holding too many shares in a portfolio can crowd out returns for good ideas

The more shares that are added to a portfolio the less of an impact a good idea will have on the total return.

I personally like to call this concept 'di-worsification'. Adding more shares for diversification's sake alone isn't a good idea as it can dilute returns.

Good ideas are scarce

According to Ms Folder's numbers, over the last 3 years to June 2018, 4 stocks in the ASX300 Industrials Index have been able to earn an annualised return of over 100%, and 15 stocks earned over 50% annualised return.

This shows that, in hindsight, you only need to find those few high-performers to create truly wonderful returns for your portfolio. The hard part is finding those market-winners before the rest of the market does.

Competitive knowledge advantage

It's better to completely understand a small number of businesses than know a little about a lot of businesses. If you have done detailed research and know your shares very well then it gives you a better chance of knowing if your idea is a market-beater and whether it's an opportunity missed by the market.

Diversification isn't lost

No-one is advocating that your portfolio should be just one share. There is probably a sweet spot of between five to thirty holdings where you have given your portfolio enough diversification to mitigate risk without damaging your overall returns.

Foolish takeaway: The proof is in the pudding

You just have to look at the portfolios of market-beating investors like Warren Buffett, Naos, Magellan Financial Group Ltd (ASX: MFG) and others to see that owning a small selection of quality long-term growth businesses can create strong market outperformance. I myself am trying to limit my portfolio to under 30 positions.

The post How many shares should you own in your portfolio? appeared first on The Motley Fool Australia.

So, what should an income-seeking investor do?

I think Australian shares are the answer. Many experts agree that, on the income side of things, Australian share investments are hard to match for the income they can produce.

Here are three ideas to generate good income for your lifestyle:

Rural Funds Group (ASX: RFF)

Rural Funds is currently the only purely agricultural real estate investment trust (REIT) on the ASX. It owns farms in a variety of different food sectors including cattle, vineyards, almonds, macadamias, cotton and poultry.

I think it's a really good income option because it has rent rises built into all of its contracts with indexation linked in some way to either a 2.5% increase or CPI increase each year. That allows management to predict that Rural Funds can increase its distribution each year by 4% over the long-term.

It currently has a distribution yield of 5%.

Magellan Global Trust (ASX: MGG)

This is a listed investment trust (LIT) run by the high-performing Magellan Financial Group Ltd (ASX: MFG). It invests in what it thinks are the highest quality businesses in the world, most of which are listed in the US.

Its largest holdings include Facebook, Alphabet (Google), MasterCard, Visa, Wells Fargo, Lowe's and Apple.

Magellan Global Trust has a target of a 4% yield of its NAV and also looks to provide shareholders with solid capital growth.

NAOS Ex-50 Opportunities Company Ltd (ASX: NAC)

This is a listed investment company (LIC) operated by Naos. It looks to invest in mid-cap shares that are outside of the S&P/ASX 50, which should provide more growth than Australia's biggest blue chips but also be relatively safer than small caps.

Over the past three years its portfolio has returned an average of 15.25% per annum before fees and it has increased its dividend each year since the second half of FY15. The recent changes to its benchmark make it a more compelling choice.

It currently has a projected grossed-up dividend yield for FY18 of 8.1% which will soon be paid quarterly instead of every six months.

Foolish takeaway

All three shares are trading at better value than they were in recent history. At the current prices it's hard to choose a winner, Naos has a much bigger yield but the other two may create stronger total returns over the medium-term.

The post 3 dividend shares for easy income appeared first on The Motley Fool Australia.

It has a bias towards industrial businesses and looks to keep a concentrated portfolio of high-conviction ideas. At the end of June 2018 it had 11 holdings and 6.63% of the portfolio was cash.

Over the past three years its portfolio has generated an average return of 15.25% per annum before fees, which is a solid performance.

The LIC has also proposed to amend the benchmark to the S&P/ASX 300 Industrials Accumulation Index, which is a good move for shareholders.

Why it could be good for cashflow

The LIC aims to pay a sustainable growing fully franked dividend each year. It has increased the dividend each year since it started paying in the second half of FY15.

The company currently has a projected grossed-up dividend yield of 8.3% for FY18. This alone is an attractive yield, particularly as the LIC is trading at a 13% discount to the post tax NTA.

However, Naos just announced the proposed dates that it will pay a quarterly dividend. It is aiming to pay quarterly in November 2018, March 2018, June 2018 and then September 2018 which would then appear to bring it into a regular quarterly cycle.

Quarterly dividends even out the cash flow and a payment in June is a good idea as very few businesses on the ASX pay a dividend or distribution in that month. I like the changes that Naos has announced.

As long as NAOS Ex-50 Opportunities Company's net return after fees outperforms the ASX index and it continues to pay a growing dividend then it could be a good choice for a retiree's portfolio over the long-term.

The post Why this LIC could be a good idea for a retiree's cashflow appeared first on The Motley Fool Australia.

So, what should an income-seeking investor do?

I think Australian shares are the answer. Many experts agree that, on the income side of things, Australian investments are hard to match for the income they can produce.

If I had $10,000 to invest into dividend shares, this is how I'd do it:

WAM Research Limited (ASX: WAX) – $3,000

This is one of several listed investment companies (LICs) run by Wilson Asset Management. Over the past year its portfolio has returned 16.2% before fees, soundly outperforming its benchmark. Over the past five years its portfolio has returned an average of 18.5%, also before fees.

It has generated this impressive performance whilst maintaining a high level of cash, at the end of May 2018 it had 35.9% of the portfolio allocated to cash. The strong performance allows WAM Research to pay an increasing dividend, which is why I'm happy to allocate a good chunk of the money here.

It currently has a grossed-up dividend yield of 8.9%.

Rural Funds Group (ASX: RFF) – $2,500

Rural Funds Group is my favourite real estate investment trust (REIT). It has long-term assets that don't depreciate in value like an office building does. The management have done an excellent job of locating farmland that it can invest in to improve the capital and rental value.

The rental indexation that is built into all of its contracts with tenants allows Rural Funds to confidently predict that the distribution can be increased by 4% per annum over the long-term. It only has an 80% payout ratio, allowing the business to re-invest for growth.

It currently has a trailing distribution yield of 4.8%.

InvoCare Limited (ASX: IVC) – $3,000

InvoCare is the largest funeral operator in Australia and New Zealand. I believe it represents a good long-term opportunity because death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

It is currently significantly investing into its locations so that its facilities can cater for modern demands. Although this is painful in the short-term, management believe that it will lead to sustainable 10% annual earnings per share (EPS) growth in the long-term.

Annual 10% growth to the dividend sounds good to me when it's currently 4.9% grossed-up.

NAOS Absolute Opportunities Co Ltd (ASX: NAC) – $1,500

This is a LIC run by NAOS. It focuses on shares that have market capitalisations between $400 million and $1 billion. It has been quite successful with the average return per annum before fees being 15.67% since inception in late 2014.

It is steadily growing the dividend and plans to soon start paying dividends quarterly instead of bi-annually. It currently has a grossed-up dividend yield of 8%

Foolish takeaway

I'd normally include Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) in an article like this, but it's currently trading too expensively for me to include it.

The above shares have an average yield of 6.6%, yet also offer compelling growth potential and defensive characteristics.

The post How I'd invest $10,000 into dividend shares appeared first on The Motley Fool Australia.

However, one question that needs to be considered is how much cash should you hold in your portfolio? Should you hold any cash at all?

Over the long-term it's proven that cash will provide the smallest returns compared to shares and property, particularly with the current bank interest rates being so low at 3% at best.

However, when asset prices go down I bet you want to have some cash on hand to buy some beaten-up shares at good prices. With the global asset prices being so high, it could make sense to hold some cash.

That's the problem with investing, you have no idea what share prices are going to do next.

Depending on your share parcel buying size, it might be a good idea to always have at least one purchase amount ready to go. Whether that's $500, $1,000 or $10,000. I sure find it annoying when there's a stock that has dropped and I don't have any money to invest.

Some professional have large amounts of cash on hand, perhaps above 20% of the portfolio, like Magellan Global Trust (ASX: MGG) and WAM Research Limited (ASX: WAX). This provides downside protection and also gives opportunities to snap up bargains.

Other investors, like NAOS Absolute Opportunities Co Ltd (ASX: NAC), don't have much cash but own stocks that have good cash positions on the balance sheet.

Each investor needs to decide how much cash they want to hold considering their age and risk tolerance.

Foolish takeaway

The riskier you feel the market is, the more understandable it would be to hold a bit more cash in your portfolio. However, it's a fool's (small f) game to try to predict when a market meltdown will occur. Some studies have shown that the best returns are generated in the lead up to a market dip.

The post How much cash should you hold in your portfolio in these times? appeared first on The Motley Fool Australia.

Shares are the only game in town to generate good income, which is why income investors would be well suited to look at some shares on the ASX.

However, just because something has a big yield doesn't mean it's necessarily good.

Here are some options I think dividend investors could be interested in:

NAOS Absolute Opportunities Co Ltd (ASX: NAC)

This is the listed investment company (LIC) run by Naos that focuses on the larger end of the share market. It invests in industrial companies with market capitalisations between $400 million and $1 billion. Indeed, it's looking to change its name to NAOS Ex-50 Opportunities Company to reflect its hunting ground.

Over the past three years its portfolio has returned an average of 16.26% per annum before fees, making it one of the highest-performing LIC portfolios on the ASX. This has allowed the company to increase its dividend every year since it started paying in FY15.

It has just proposed changing to quarterly dividends, which could be good for an investor's cashflow. It has a grossed-up dividend yield of 7.86% assuming it pays at least a fully franked annual dividend of 5.5 cents per share over the next 12 months.

Cromwell Group (ASX: CMW)

Cromwell is a property business that owns property and runs property funds. It leases a bigger percentage of its properties to government bodies than a lot of other real estate investment trusts (REITs).

Property is an attractive long-term asset and Cromwell has performed well for shareholders through this economic cycle.

It has a high payout ratio and has a lot of debt on its balance sheet, which means its share price is lower and the distribution yield is boosted to 7.6%.

WAM Leaders Ltd (ASX: WLE)

WAM Leaders is the listed investment company (LIC) run by Wilson Asset Management (WAM) that focuses on the mid-cap to large-cap space of the ASX.

Over the past year it has outperformed its ASX index benchmark by 8.5%, which is quite impressive in my opinion. It is increasing its dividend thanks to the profit outperformance.

If it pays 5 cents per share over the next 12 months as dividends, it currently has a grossed-up dividend yield of 6.26%.

Foolish takeaway

All three shares are attractive dividend payers. The rising interest rate environment means I'd be very cautious about investing in Cromwell shares at the moment. However, the Naos and WAM LICs have both proven to be solid dividend choices.

The post 3 dividend shares with yields over 6.25% appeared first on The Motley Fool Australia.

The LIC has previously been attractive to me because its portfolio has delivered impressive long-term returns (before fees) and it currently has a trailing grossed-up dividend yield of 7.85%.

However, investors have regularly pointed out that this LIC has an odd benchmark of the RBA cash rate plus 2.5%. When the LIC first launched a few years ago this would have been a decent target to earn a performance fee, but with the RBA rate being so low it has a much lower target.

NAOS Absolute Opportunities Co today announced it is proposing a few changes.

Name change

The proposal is to change the name to NAOS Ex-50 Opportunities Company Limited to make it more clear about what its mid-cap investment strategy is, however the code will remain ASX: NAC.

Benchmark change

It is also proposing that the benchmark be changed to the S&P/ASX 300 Industrials Accumulation Index.

The NAOS board believes this would be a more appropriate benchmark index for the manager to have to earn an outperformance fee.

Dividend frequency

The LIC is also suggesting that it could change the dividend payment frequency from six-monthly to quarterly so that it can promote itself to the financial planning community as well as direct shareholders like SMSFs to help with their cash flow and investment objectives.

This won't change how much dividends shareholders get in total, but spreading the amount out throughout the year could be helpful. Not many companies pay in the months of December or June, so perhaps those months would be particularly attractive for retiree shareholders if chosen.

Foolish takeaway

If I were a NAOS Absolute Opportunities Co shareholder I would be particularly pleased with the benchmark change, as it will likely mean a higher threshold for performance fees. This is a positive step and I'd be more comfortable holding shares in my own portfolio

The post Is this share now the best dividend idea for retirees? appeared first on The Motley Fool Australia.

One major contributor to this conundrum is that many of the major dividend payers have reached maturity and are now slow-growth businesses. They're now large targets for smaller competitors and are at risk of having their profit margins reduced.

The best way for Australians to combat this may be to invest in shares that invest in other shares and pay out a majority of their gains out as dividends. Those investment shares are called listed investment companies (LICs). Here are three good options:

WAM Leaders Ltd (ASX: WLE)

WAM Leaders is a LIC run by the high-performing Wilson Asset Management team. WAM Leaders is the LIC that focuses on the large end of the Australian share market.

Over the past year to the end of April, the WAM Leaders portfolio has grown by 14% before fees, compared to the S&P/ASX 200 Accumulation Index which had grown by 5.5%. This is an impressive outperformance.

The WAM Leaders portfolio has outperformed its benchmark every month this financial year. If it pays the same 2.5 cents per share dividend later this year, it's trading on a grossed-up yield of 6.3%.

NAOS Absolute Opportunities Co Ltd (ASX: NAC)

This company is run by Naos Asset Management. This particular LIC looks at industrial companies with market capitalisations between $400 million and $1 billion.

I like the Naos way of doing things because they run very concentrated portfolios. This can lead to outperformance over the long-term if the investment team selects shares correctly. Over the past three years the portfolio has returned an average of 16.26% per annum before fees.

If the LIC repeats its half-year dividend amount of 2.75 cents per share again, it's currently trading on a grossed-up dividend yield of 7.9%.

Clime Capital Limited (ASX: CAM)

Clime is a LIC that aims to give shareholders exposure to a wide variety of shares in the large cap, medium cap, small cap ASX worlds and the international share market.

Returns aren't guaranteed of course, but I like the shares it's picking as major holdings including Ramsay Health Care Limited (ASX: RHC), Credit Corp Group Limited (ASX: CCP), Collins Foods Ltd (ASX: CKF) and Alphabet Inc (Google).

It is steadily increasing its dividend and currently has a grossed-up yield of 8.4%.

Foolish takeaway

I like all three LICs and I'd much rather own one of them than most of the top ASX20 businesses. At the current prices I'd probably go for the Naos one because it's trading at a bigger discount to the NTA, but WAM Leaders would also make a good long-term choice for income.

The post 3 dividend shares with big yields over 6.25% appeared first on The Motley Fool Australia.

With that in mind, I think listed investment companies (LICs) could provide the answer that income seekers are looking for. They generally provide good, growing income because they own a diverse portfolio of stocks and pay out most of the profit as a dividend.

With that in mind, here are three LICs with big dividends:

Clime Capital Limited (ASX: CAM)

Clime is currently trading with a grossed-up dividend yield of 8.4%.

I like Clime because it offers investors a diverse portfolio of shares with Aussie large caps, medium caps, small caps as well as international shares. This diversification allows Clime to find the best shares from any market segment it thinks is good value.

For the financial year to date Clime's portfolio has returned 8% net of fees. This isn't a huge return, but I like the shares it's buying and its dividend is slowly growing.

WAM Research Limited (ASX: WAX)

WAM Research is currently trading with a grossed-up dividend yield of 9.17%.

This is my favourite LIC of the WAM LICs. It purely looks at the quality of the business and only goes for undervalued growth companies where it sees a catalyst to increase the valuation. Otherwise, the LIC sticks to cash – which is a safe yet very effective way of operating.

It has grown its dividend every year since the GFC and its portfolio has grown by 12.3% over the past year before fees.

NAOS Absolute Opportunities Co Ltd (ASX: NAC)

NAOS Absolute Opportunities Co is trading with a grossed-up dividend yield of 7.78%.

This LIC is run by Naos Asset Management. It looks to buy industrial companies with market caps between $400 million and $1 billion. It has grown its dividend each year since it started paying one in the second half of FY15 and its portfolio has grown by 10.18% before fees over the past year.

Foolish takeaway

I believe all three LICs will continue to generate pleasing income for shareholders, however I think WAM Research would be the best choice for dividends because it is currently yielding over 9% and has a proven long-term track record of outperforming the market.

The post 3 LICs with yields over 7.75% appeared first on The Motley Fool Australia.

The only job of a LIC is to invest in other shares for the benefit of shareholders. Not every LIC will generate strong returns. Investors wishing to beat the ASX index shouldn't invest in the LICs that invest in a similar fashion to the ASX Index.

However, these three LICs could be good options:

WAM Microcap Limited (ASX: WMI)

WAM Microcap is the WAM LIC that focuses on the smallest end of the share market. It looks for undervalued growth companies with a market capitalisation of under $300 million at the time of acquisition.

The small cap area of the market is the least-covered area by investors and analysts, meaning that there could be the most opportunities. In the financial year to date the WAM Microcap portfolio has grown by 21.4% before fees, outperforming its benchmark.

If it pays another 2 cent per share dividend at the full-year result it's trading with a grossed-up dividend yield of 4.1%.

NAOS Absolute Opportunities Co Ltd (ASX: NAC)

This is a LIC that focuses on shares with an industrial bias and have market capitalisations of between $400 million to $1 billion.

The Naos investment team invest in shares with at least a three-year investment horizon in mind. That's why its portfolio has returned an average of 16.26% per annum over the past three years before fees.

I like that the Naos portfolios are quite concentrated, meaning the team only invests in shares that it believes will deliver good returns.

If the LIC pays another 2.75 cent dividend at the full-year result it is currently trading with a grossed-up dividend of 7.8%.

L1 Long Short Fund Ltd (ASX: LSF)

This is a new LIC to the market. It boasted of generating strong returns in the unlisted fund, indeed over the past three years its average net performance after all fees per annum was 39.42%.

The LIC could continue to perform well because it has the ability to invest in Australian shares and international shares. As the name suggests, it can also short stocks if it wants to.

I think investment managers that invest into global stocks will be the ones to outperform over the next few years.

Foolish takeaway

I would happy to buy WAM Microcap shares at today's price, as I believe in the WAM investment process. The Naos one is interesting, but it has comparatively high fees and an odd benchmark. The L1 Long Short LIC could do very well, but I'd like to see what it is investing in before I commit any money.

The post 3 LICs for a strong and passive portfolio appeared first on The Motley Fool Australia.

So, what should an income-seeking investor do?

I think Australian shares are the answer. Many experts agree that, on the income side of things, Australian investments are hard to match for the income they can produce.

If I were investing $3,000 into dividend shares today, this is what I'd pick:

WAM Research Limited (ASX: WAX)

WAM Research is the best listed investment company operated by Wilson Asset Management in my opinion. It has just gone ex-dividend, which has sent the share price down from $1.58 to $1.52. This represents better value and a higher dividend yield for potential investors.

The LIC has outperformed the ASX over the past five years and it pays a growing dividend yield out from its impressive investment returns. It currently has a grossed-up dividend yield of 8.67%.

Greencross Limited (ASX: GXL)

Greencross is Australia's largest pet company with its clever strategy of owning the Greencross vet network and the Petbarn retail network. The company is experiencing like-for-like revenue growth across the board and is also delivering high single-digit profit growth.

The company has grown its dividend each year since 2009 and increased it by 5% in its latest half-year report. It currently has a grossed-up dividend yield of 5.22%.

NAOS Absolute Opportunities Co Ltd (ASX: NAC)

This Naos LIC generally invests in shares with market capitalisations of under $1 billion that usually operate as industrial businesses.

It makes long-term investments with at least a three to five year investment horizon, which gives the best chance for its investments to work out and is why it has been one of the better performing LICs for shareholders over the past three years.

It currently has a grossed-up dividend yield of 7.5%.

Foolish takeaway

I like all three of these dividend ideas, which is why I'm invested in two of them. At the current prices I think Greencross is the best option because it's only trading at around 14x FY18's earnings and is expected to continue growing over the next few years.

The post How I'd invest $3,000 into dividend shares appeared first on The Motley Fool Australia.