AFIC (ASX:AFI) aims to grow its dividends faster than inflation. Is it delivering?

How do AFIC's dividends stack up?

| More on:
A giant inflatable pig hot air balloon soars high in the sky.

Image source: Getty Images

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

The Australian Foundation Investment Co Ltd (ASX: AFI) has been an ASX stalwart for decades. Since it first opened its financial doors in 1928, AFIC (as it's more easily known) has built a reputation as a listed investment company (LIC) focused on strong, stable and robust returns. In an age before anyone had heard of an exchange-traded fund (ETF), this was a useful reputation to have.

And it's one that AFIC has arguably upheld in this modern age. According to the company's website, AFIC shares have returned an average of 13.2% per annum over the past 10 years (including the benefits of franking). That is a significant outperformance of the S&P/ASX 200 Accumulation Index, which has returned 11.6% per annum over the same period (also including franking).

Dividends: Has AFIC still got it?

One of the main attractions that investors have towards AFIC is the company's history of dividend payments. AFIC has paid out a biannual dividend for decades now, and one that has tended to rise over time.

With talk of inflationary pressures returning to investors' minds with a vengeance in 2021, dividends are arguably more important than they have been for years. This, AFIC is happy to tell us, is a primary concern for this company. Here's what it has to say on its dividend policy:

As a long-term investor, our primary method of communicating value to our shareholders is through a growing stream of fully franked dividends. We aim to provide shareholders with real income growth through dividends growing at a greater rate than inflation.

So AFIC promises investors that it will 'aim' to ensure its dividends not only keep pace with inflation but outstrip it, compensating investors over and above for its wealth-destroying effects.

So how do AFIC's dividends measure up in this regard?

Well, here is a table of AFIC's dividend payments over the past decade or so, against the Australian inflation rate (sourced from rateinflation.com):

YearAFIC fully-franked dividend (cents per share)Rise over previous yearAnnual inflation rate
2011213.3%
2012211.8%
2013224.76%2.4%
2014222.5%
2015234.55%1.5%
2016244.35%1.3%
2017241.9%
2018241.9%
20193233.3%1.6%
202014(56.25%)0.8%
202114~2.63% over first 3 quarters
Table: Author's own | Source: afic.com.au

A mixed bag when it comes to inflation

So as you can see, AFIC's dividends have done a pretty decent job keeping ahead with inflation, with the obvious caveat that we haven't seen this continuing over the past 2 years. The coronavirus pandemic has played havoc with both inflation and the share market. And while inflation seems to be stepping up more recently, AFIC's dividend payments have yet to catch up. We can probably blame the dividend drought of 2020 for this.

As a LIC, AFIC holds an underlying portfolio of ASX shares, the most prominent of which are the blue chips like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC). Westpac and CBA (like the other ASX banks) slashed their dividend payouts last year in response to the threat COVID posed to the Australian economy. In turn, this means AFIC would have received fewer dividends from its holdings, hampering its capacity to fund its payouts.

So it remains to be seen whether AFIC's 2022 dividends and beyond can return to the levels they were at before 2020 and, in turn, continue to keep up with inflation. So circle 24 January 2022 on your calendar – that's when AFIC will release its interim results for FY2022, and we'll probably find out what its next dividend will be.

At AFIC's current share price of $8.18, this ASX LIC has a trailing dividend yield of 2.93%.

Should you invest $1,000 in Australian Foundation Investment Company Limited right now?

Before you buy Australian Foundation Investment Company Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Australian Foundation Investment Company Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 6 March 2025

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Dividend Investing

Person holding Australian dollar notes, symbolising dividends.
Dividend Investing

How I would build a $1,000 monthly passive income stream with ASX shares

It isn't as hard as you might think to build a sizeable passive income.

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Dividend Investing

3 undervalued ASX dividend stocks paying a remarkable 6%+

Analysts are expecting big payouts from these shares.

Read more »

An ASX investor in a business shirt and tie looks at his computer screen and scratches his head with one hand wondering if he should buy ASX shares yet
Dividend Investing

Where are my dividends? A small error costing shareholders big dollars

There’s millions of dollars in unclaimed funds floating around. Does some of it belong to you?

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Dividend Investing

1 marvellous ASX dividend stock down 33% to buy and hold immediately

Analysts think this stock could be a great pick for income investors.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Dividend Investing

Dividend reinvestment plans deliver big discounts on Wisetech, Bendigo Bank, and Woolworths shares

Wisetech, Bendigo Bank, and Woolworths have announced their dividend reinvestment plan share prices.

Read more »

Happy man holding Australian dollar notes, representing dividends.
Dividend Investing

How to earn $50,000 of passive income from ASX shares

The share market can be used by investors to generate significant income. Here's how.

Read more »

REIT written with images circling it and a man touching it.
Dividend Investing

2 ASX shares with dividend yields above 6%

These businesses could be resilient distribution payers.

Read more »

A woman sets flowers on a side table in a beautifully furnished bedroom.
Dividend Investing

This ASX dividend stock is projected to pay a 12% yield by 2027

This business is projected to unleash large dividends to investors

Read more »