Is the AFIC share price a good-value buy today?

Is the LIC stalwart a buy?

| More on:
Modern accountant woman in a light business suit in modern green office with documents and laptop.

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), or AFIC, share price has been headed lower over 2023, as we can see on the chart below. Does this make it a buy opportunity?  

For readers who don't know, AFIC is a listed investment company (LIC) that has been operating for around 100 years. Its job is to make returns for shareholders, which it predominately does by investing in ASX blue-chip shares.

It tends to pay investors a steady dividend, which may be attractive for people who want consistent passive income.

As a general point, I think AFIC is a worthy investment vehicle to get exposure to the ASX share market. I'm going to look at whether it's good value today.

Discount or premium?

A LIC's portfolio represents a basket of shares that has a value.

Every month, the company tells us about its net tangible asset (NTA) per share which is essentially the underlying value of each AFIC share.

At 30 September 2023, the AFIC pre-tax NTA was $6.97. The NTA changes every day as the share prices of the portfolio move each trading day. But, the latest monthly NTA is what investors have to utilise.

The current AFIC share price is $6.80, which is a 2.5% discount to that September NTA figure of $6.97.

AFIC shares traded at a sizeable premium to its NTA during COVID-19, but in the last few months, it has started to trade at a discount.

Looking at the AFIC chart of monthly NTA premiums or discounts, it hasn't reached a discount of 5% (or more) in the last decade, so this is close to the best it has been in terms of the NTA discount for the past ten years.

AFIC investment performance

The AFIC portfolio performance, being net asset per share growth plus dividends (including franking), has underperformed the S&P/ASX 200 Accumulation Index (ASX: XJOA) (including franking) in the short-term and long-term.

In the past year, AFIC's portfolio underperformed by 1%, while over the past ten years, it underperformed by an average of 0.8% per annum

However, the LIC notes that the AFIC portfolio return is also calculated after management fees, income tax and capital gains tax on realised sales of investments, while the index does not include management expenses or tax.

So, each investor will need to decide what is a fair comparison between AFIC and the index.

What we can see is that the AFIC share price is only up by around 12% over the past five years. It may not be the sort of investment that delivers strong capital growth because of the businesses it invests in and how it pays out a sizeable dividend every year.

Dividend yield

Over the last 12 months, owners of AFIC shares have received 25 cents per share.

That represents a cash dividend yield of 3.7% and a grossed-up dividend yield of 5.25%. Investors can get savings accounts that pay a similar amount now, so it's not as attractive as it used to be.

Foolish takeaway

I think AFIC is essentially the most attractive it has been. But I'm not expecting much capital growth because I don't think large positions in the portfolio like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) or Woodside Energy Group Ltd (ASX: WDS) can deliver a lot of capital growth because of how big they already are in their respective industries.

There are plenty of ASX shares that could achieve stronger long-term returns, but I think AFIC shares can still be a good long-term option for people who want simple investing.

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 Tristan Harrison 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Financial Shares

Man with rocket wings which have flames coming out of them.
Earnings Results

This ASX 300 financial stock is rocketing 22% on record results

A record result is getting investors excited today. Here's what the company reported.

Read more »

Three businesspeople leap high with the CBD in the background.
Earnings Results

Guess which ASX 300 stock is jumping 13% on results day

Investors are cheering on this result. Let's see what it reported.

Read more »

A man looking at his laptop and thinking.
Financial Shares

Down 23% in February, time to sell this ASX 200 financial stock?

A leading expert forecasts the ASX 200 financial share may continue to struggle in 2025.

Read more »

Woman and man calculating a dividend yield.
Financial Shares

Should you buy Macquarie shares in March?

Macquarie is one of the most impressive financial businesses on the ASX.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Earnings Results

Guess which ASX 200 share just leapt 15% on big special dividend boost

Investors are piling into the ASX 200 share on Tuesday.

Read more »

A woman holds up her hand in a stop gesture with a suspicious look on her face as a man sitting across from her at a cafe table offers her flowers.
Financial Shares

No Deal: Perpetual shares slide as KKR offer terminated

Perpetual now has quite the task ahead of itself.

Read more »

A man points at a paper as he holds an alarm clock.
Financial Shares

It's time to buy: 1 ASX 200 stock that hasn't been this cheap in years

This business could be too cheap to ignore.

Read more »

A businessman carrying a briefcase looks at a square peg or block sinking into a round hole.
Earnings Results

Block share price tanks 8% on FY24 results

Investors didn't wait to react to the company's 2024 numbers.

Read more »