Katana Capital Limited (ASX:KAT) lets shareholders reinvest their quarterly dividends through a Dividend reinvestment plan (DRP) that operated for its latest 0.5 cent fully franked dividend. The listed investment company (LIC) uses an unusual structure: DRP shares are priced at the weighted average price achieved in an on-market DRP buy-back programme, with no discount applied.

Latest developments

Katana reported its results for FY26. Net profit after tax rose 43% to $3.81 million, from $2.67 million in FY25, and Earnings Per Share increased to 12.04 cents from 8.43 cents. Net investment income increased to approximately $8.0 million from approximately $4.6 million.

Net Tangible Asset (NTA) backing rose to $1.46 per share at the end of FY26, from $1.36 a year earlier. The company has since lodged its Annual Report with the ASX, and it has continued an on-market share buy-back, lodging buy-back updates with the ASX.

Key numbers

Katana paid four quarterly dividends during FY26, each 0.5 cents per share and fully franked, totalling 2 cents per share. The latest dividend relates to the June 2026 quarter.

The dividend was franked at the 30% company tax rate, and the value of franking credits depends on each investor's tax position. With 2 cents of dividends against FY26 EPS of 12.04 cents, dividends were well below reported earnings, although LIC earnings include investment gains that can vary from year to year. NTA is reported regularly and can move month to month.

About the company

Katana Capital is an LIC that listed on the ASX in 2005. Its portfolio is managed by Western Australia-based Katana Asset Management, with Romano Sala Tenna as portfolio manager, and the board is chaired by Dalton Gooding.

The company invests in Australian listed equities and describes its approach as an all-opportunities strategy. As an LIC, its ability to pay franked dividends depends on the profits and franking credits it builds from its investment portfolio, rather than from an operating business.

How the DRP works

For the June-quarter dividend, Katana offered a full DRP, with cash as the default for holders who did not make an election. Elections were due shortly after the record date. According to its dividend notice lodged with the ASX, the DRP price was set as the weighted average share price achieved in the company's on-market DRP buy-back programme over the applicable pricing period, with no discount applied.

According to its FY26 annual report, Katana sources shares for the DRP through on-market acquisitions under the DRP buy-back, and no new shares were issued to satisfy the DRP during FY26. Sourcing shares on market in this way avoids the dilution that issuing new shares under a DRP would create. DRP terms are set out in the plan rules and each dividend notice and can change.

Why it matters for income investors

Katana's quarterly payments provide a regular, fully Franked Dividend stream. Franking credits are generally of most value to investors on low marginal tax rates, such as some retirees and Superannuation funds in pension phase, who may receive part or all of the Credit back as a refund. Investors on higher marginal rates still receive the credit but may pay additional tax.

The DRP lets holders add to their holdings without brokerage, with the price based on trades in the DRP buy-back and no discount applied. Each reinvested parcel adds shares that are themselves eligible for later dividends, so a participating holder's share count can grow over time without new cash outlays, provided dividends continue to be paid.

For an LIC, reinvestment also means remaining exposed to the manager's investment decisions and portfolio performance.

What comes next

Katana has paid dividends each quarter, and if that pattern continues, the next dividend would relate to the September 2026 quarter. The company also releases regular NTA updates and has continued its buy-back.

Any future dividend amount, franking level or DRP arrangement will be determined by the board and disclosed in a dividend notice.

Risks and context

LIC dividends depend on investment returns and available profits and franking credits, and weaker markets can reduce both. Katana's portfolio can hold smaller companies, which can be more volatile than large caps.

LIC shares can trade at a discount or premium to NTA. As an LIC run by an external manager with a small investment team, Katana depends on key personnel, and management costs reduce returns relative to the underlying portfolio. Reinvested dividends are still assessable income, including the franking credits attached, and each DRP parcel sets a new cost base for Capital Gains Tax purposes, so record-keeping matters.

Conclusion

Katana Capital (ASX:KAT) lets shareholders reinvest fully franked quarterly dividends through a DRP priced off its own on-market DRP buy-back, with no discount. The company reported a 43% increase in FY26 net profit after tax and higher NTA backing, while LIC-specific factors such as reliance on investment returns, the external manager and the relationship between share price and NTA remain relevant context.

Key Insights

Katana Capital (ASX:KAT) operated its DRP for the fully franked 0.5 cent June-quarter dividend, with the DRP price based on the weighted average price achieved in its on-market DRP buy-back and no discount applied. Its FY26 annual report states that DRP shares were sourced on market, with no new shares issued to satisfy the DRP during the year.

FY26 net profit after tax rose to $3.81 million and NTA backing increased to $1.46 per share, while total dividends of 2 cents per share were below reported EPS. Future dividends and DRP terms remain subject to board decisions and investment performance.