Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) share price a buy for its FY19 result?
Australian Foundation Investment Company (AFIC) is Australia’s largest listed investment company (LIC). It was established in 1928 and invests in Australian shares for its shareholders. AFIC aims to pay a growing stream of fully franked dividends and enhancement of capital invested over the medium to long term.
AFIC’s FY19 Result
AFIC reported that its net profit for shareholders grew by 45.6% to $405.9 million and revenue from operating activities increased by 43.1% to $441.4 million.
Net tangible assets (NTA) per share at 30 June 2019, before the final dividend, was $6.49 per share – up from $6.27 – before allowing for the provision of deferred tax on unrealised capital gains.
One of the most important aspects of the old LICs is how cheap their operating costs are. AFIC’s management expense ratio (MER) calculated as the net expenses of managing AFIC as a percentage of the average value of its investments including cash over the year was 0.13% – down from 0.14% in FY18.
The portfolio return for the year, including franking, was 11.4% compared to the S&P / ASX 200 Accumulation Index’s return of 13.4% including franking. Over the last decade, the corresponding figures are 11.5% per year for AFIC and 11.7% for the ASX 200 Accumulation Index.
AFIC decided to take part in the BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) off market share buy-backs, which generated “significant” franking credits for the company, although the holdings were sold at a 14% discount to the market.
AFIC’s Dividend
A fully franked dividend of 14 cents per share has been declared for the final dividend, the same as last year.
This brings the ordinary dividend to 24 cents per share – the same as last year. But, the company also paid a special dividend to shareholders earlier in the year to unlock franking credits held by the company.
Is AFIC A Buy?
In hindsight, deciding to participate in the resource share buy-back at a large discount was a mistake, continuing the underperformance of AFIC compared to the index over the short term and long term. If that continues then investors may as well choose BetaShares Australia 200 ETF (ASX: A200) instead.
Or, you could consider the reliable ASX shares in the free report below instead.
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