The Australian Foundation Investment Company commonly referred to as AFIC (ASX: AFI) held a shareholding meeting earlier this week in Brisbane, allowing me the opportunity to see some of the faces leading the company and to hear first-hand their review of the last financial year.
AFIC is the largest Listed Investment Company (LIC) in Australia and has been investing in Australia and New Zealand since 1928.
AFIC’s investment objective is to provide shareholders with attractive returns through access to a growing stream of fully franked dividends and growth in capital invested. They aim to:
- pay dividends, which grow faster than the rate of inflation
- provide attractive returns in the medium to long term
To achieve this, AFIC has developed a diversified share portfolio including good quality companies which they will hold for the medium to long term which will sustainably grow their profits and dividends over this timeframe.
The Results
AFIC was impressively able to report that their net profit after tax (NPAT) was $406.9 million seeing an increase of almost $128 million compared to their 2018 results.
FY19 saw them pay a special dividend of eight cents per share, in addition to their interim dividend of 24 cents per share. They have paid a dividend of 24 cents per share to shareholders since 2016 so an increase was well received by shareholders.
The Management Expense Ratio (MER) was reported as 0.13% compared to 0.14% for the previous year. In simple terms, shareholders will be paying 13 cents for every $100 they have invested in AFIC, a very cheap cost for high-quality output.
AFIC’s Next Steps
With the volatility the markets have been seeing recently, AFIC continues to look for select opportunities.
AFIC referred to the trade war between US and China, Brexit, tensions and conflicts in the Middle East, falling bond yields, and equity valuations being elevated against long term averages as the main reasons for these market conditions. They continue to do their research with the view that they will not settle for anything that will not create long term growth and value. This is key for the company but more importantly for shareholders.
Not only are AFIC keen to invest in new opportunities and increase exposure to existing investments, but also willing to sell-off any underperforming investments. This year has seen them reduce their portfolio from 85 to 71 investments.
Is It Time To Own AFIC?
There was plenty of positive feedback from AFIC during the shareholder event, where they reiterated that they will do what they can to continue to deliver for their shareholders. My view is that they truly care about their shareholders and will continue to do everything they can to ensure sound investment decisions are made with growing returns for years to come.
AFIC was one of my first shareholdings and has been a stable investment due to its diversified nature. As I write this, I believe AFIC will remain in my portfolio for a long time into the future.
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Disclosure: at the time of writing Robert holds shares in Australian Foundation Investment Company.
