AFIC (ASX:AFI) announces FY20 result and dividend

Australian Foundation Investment Company (AFIC) (ASX: AFI) has announced its FY20 result and declared its final dividend. The AFIC share price is up 0.65%.

FY20 result

Listed investment company (LIC) AFIC has announced that its net profit was $240.4 million, down 40.8% from the prior year.

AFIC said that economic conditions have been extremely challenging for many of its share holdings because of COVID-19 impacts. Share prices have also been volatile.

A number of one-off items from last year were not repeated this year like off-market share buy backs by Rio Tinto (ASX: RIO) and BHP (ASX: BHP), special dividends and the Coles (ASX: COL) demerger dividend. Some businesses reduced, deferred or completely suspended their dividends in the second half of FY20.

The company said that the portfolio return for the year, including franking, was minus 3.1%. The S&P/ASX 200 Accumulation Index, including franking, saw a negative return of minus 6.6%. However, it has underperformed the index over the past five years and ten years.

Some of the companies that helped performance in FY20 were: CSL (ASX: CSL), Wesfarmers (ASX: WES), Xero (ASX: XRO), Fisher & Paykel Healthcare (ASX: FPH) and Nextdc (ASX: NXT).

Some of the biggest acquisitions during the period were: Goodman Group (ASX: GMG), Telstra (ASX: TLS), Sydney Airport (ASX: SYD) and Cochlear (ASX: COH). Some of the biggest sales were: Treasury Wine Estates (ASX: TWE), Suncorp (ASX: SUN), DuluxGroup (taken over) and Scentre (ASX: SCG).

AFIC FY20 dividend

AFIC’s Board declined a final fully franked dividend of 14 cents per share, the same as last year’s final dividend. That brings the full year ordinary dividend for FY20 to 24 cents – the same as last year (and a few years before that).

Last year a special dividend of 8 cents per share was paid, but there was no special dividend this year.

In FY20 the LIC generated 19.88 cents of earnings per share (EPS), so AFIC paid out more than 100% of its profit as a dividend.

Is the AFIC share price a buy?

AFIC had a management expense ratio (MER) of 0.13% for FY20, the same as last year. It’s one of the cheapest ASX investment options on the ASX.

The LIC reported that at the end of June 2020 its pre-tax net tangible assets (NTA), before allowing for the dividend, was $5.96. That means its share price was at a small premium on both 30 June 2020 and today.

I don’t think it makes much sense to buy a LIC at a premium to its NTA unless it’s likely to deliver market outperformance over the longer term. I also think it’s an unhealthy sign for a business to pay out more than 100% of its profit out as a dividend. Hopefully that doesn’t happen next year. It offers a fully franked dividend yield of 3.9%. I think there are better dividend shares out there such as one of these two.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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