Following the recent falls in the local sharemarket, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), Australia's largest listed investment company is going on the prowl for new stock.
Australian Foundation Investment Co. Ltd. (ASX: AFI) is seeking to raise between $150 million and $200 million from shareholders over the next two months for "investment purposes".
Why?
Because the market might be bottoming out – ready for a rebound.
"The outlook is sufficiently uncertain that it might not be the bottom of the market but my feeling is, particularly in the big stocks, it could be reasonably closer to it because 25 per cent falls are historically big falls," AFIC Chairman, Terry Campbell, was yesterday quoted as saying by Fairfax Press.
"I do think the volatility will continue, and when you have these very sharp down days it is nice to have a bit of cash."
Over the 10-year period to 31 August 2015, AFIC's $4.4 billion investment portfolio returned a healthy 7.1% per year in dividends and growth, compared to the market's 6.2%.
Ready to rebound
At the end of September, AFIC had roughly $612 million and $508 million in Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) shares, respectively. The fund also had $316 million of exposure to BHP Billiton Limited (ASX: BHP) shares.
CBA, Westpac and BHP shares are down 20%, 22% and 18% over the past six months, and are sporting big dividend yields. However, despite their large holding, Mr Campbell says many large ASX-listed companies could be forced to cut their dividends.
"One of the things overseas investors don't like about our banks is that their dividend payout is too high, and one of the points we have actually made to BHP Billiton is that we love the dividends but in the end the balance sheet is more important than paying out high dividends in times when you are not making high profits," the AFR reported.
Foolish takeaway
Over the past six months, the S&P/ASX 200 has fallen 12% but has bounced back 2.7% in the past week alone. Therefore, while risks always persist, right now could be the perfect time to start buying great dividend-paying shares listed on the Australian market.
I know I am.
