Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) share price a buy for dividends?
AFIC is one of the oldest listed investment companies (LICs) on the ASX having operated since 1928. AFIC's job is to invest in other shares on the ASX.
That's one of the attractive things about LICs and exchange-traded funds (ETFs), unless debt is involved it's almost impossible to go bust. I also like that LICs and ETFs usually offer excellent diversification.
Today, AFIC has released its monthly net tangible assets (NTA) per share. Its portfolio was $7.8 billion in size at the end of the last month.
AFIC's biggest 25 positions makes up 75.5% of the portfolio. There are plenty of recognisable blue chip names in the portfolio like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Transurban Group (ASX: TCL).
It also owns some slightly smaller businesses that could be growth ideas like Treasury Wine Estates Ltd (ASX: TWE) and SEEK Limited (ASX: SEK).
One of the most attractive things about AFIC is its exceptionally low management fee cost of 0.13% per annum with no performance fees. This leaves more returns in the hands of investors.
But the returns haven't been as strong as its benchmark of the S&P/ASX 200 Accumulation Index. Over the past year AFIC's net asset per share growth plus dividends (including franking) return of 12.5% underperformed the benchmark by 1.8% and underperformed by an average of 2% a year over the past five years.
But what AFIC can offer is a very stable dividend. It has maintained or grown its dividend every year over the past two decades. For retirees this could be extremely important because they don't want the dividend to be volatile – their lifestyle expenses are going to be fairly consistent year to year.
Foolish takeaway
AFIC has a grossed-up dividend yield of 5.4% and it's currently trading at a small discount to its underlying pre-tax assets.
If you're after bond-like dividend income then AFIC could be a good choice. But long-term NTA and dividend growth seems hard to come by right now. I'd much rather buy shares that offer growth too.
