Is the AFIC share price a buy?

Is the Australian Foundation Investment Co.Ltd. (ASX:AFI) share price a buy?

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) (AFIC) share price a buy?

AFIC is the largest listed investment company (LIC) on the ASX, it's also one of the oldest LICs having operated since 1928. There aren't many businesses on the ASX that are around a century old (or older).

The main aim of AFIC is to provide shareholders with attractive investment returns through access to a growing stream of fully franked dividends and capital growth over the longer-term.

It certainly has been a solid dividend payer for shareholders. It has maintained or grown its dividend every year over the past two decades.

However, its dividend has been flat for a few years. That's largely because the income paid from its underlying holdings has also been quite slow too. The dividends of some of its largest holdings like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) have been mostly flat for the second half of this decade.

One of the best things about AFIC is that it has a very low annual management fee cost of 0.14% per annum, as well as having no performance fees. That should leave more returns for shareholders.

However, it has underperformed the S&P/ASX 200 Accumulation Index (including franking) over the past one year by 2%, by 2.8% per annum over five years and 0.4% per annum over ten years.

However, some of its other top holdings are generating pretty good returns like BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL) and Transurban Group (ASX: TCL), but not enough to make up the difference.

Foolish takeaway

Is AFIC worth buying? It's trading at a little bit of a premium to the pre-tax February 2019 NTA and a large premium to the post-tax NTA, which isn't great when you can buy the BetaShares Australia 200 ETF (ASX: A200) at NTA. Although the bond-like ordinary grossed-up dividend yield of 5.7% isn't too bad.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Man sitting in a plane seat works on his laptop.
Opinions

Expert reveals 2 ASX stocks to sell — and 1 is a recent IPO

Toby Grimm from Baker Young shares his insights.

Read more »

Happy teen friends jumping in front of a wall.
Share Gainers

Guess which 4 ASX 200 shares are rocking new 52-week highs today!

Investors just sent these four ASX 200 shares to one-year-plus highs.

Read more »

A young woman holds her hand to her mouth in surprise as she reads something on her laptop.
Broker Notes

Why are Platinum shares rocketing 13% today?

This fund manager is getting a lot of love from investors today. Let's find out why.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Share Gainers

Why Evolution Mining, Orthocell, Platinum, and Turaco shares are charging higher

These shares are having a better day that most on Thursday.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why CSL, Imricor, Jumbo, and Netwealth shares are falling today

These shares are under pressure on Thursday. But why?

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Broker Notes

Morgans says these ASX stocks can rise 30% to ~50%

Let's see which shares could generate big returns for investors.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Broker Notes

Does Macquarie rate Fortescue shares a buy, hold or sell?

The broker has given its verdict on this popular mining stock.

Read more »

group of traders cheering at stock market
Share Market News

We could see the ASX 200 at 9,000 points by 2026. Here's why.

I wouldn't be shocked to see more records this year...

Read more »