Could Australian Foundation Investment Co. Ltd. (ASX: AFI) (AFIC) be a great way to invest for the long-term in ASX shares?
What is AFIC?
AFIC is a listed investment company (LIC).
The job of a LIC is to invest in other assets on behalf of the shareholders. Usually, LICs are looking at other shares like ASX shares or global shares.
AFIC is one of the oldest LICs around. It has been going for close to a century.
What does it invest in?
AFIC is focused on large ASX blue chip shares that have the potential to produce solid returns over time, with a good amount of income thrown in. The LIC aims to pay good dividends to investors.
Looking at the portfolio and the latest monthly disclosure, the biggest holdings were: Commonwealth Bank 0f Australia (ASX: CBA), CSL Limited (ASX: CSL), BHP Group Ltd (ASX: BHP), Wesfarmers Ltd (ASX: WES), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Transurban Group (ASX: TCL) and National Australia Bank Ltd (ASX: NAB).
AFIC has also started to invest in global shares, to add more diversification to its portfolio, and hopefully growth.
Dividend payments
AFIC has been consistently paying $0.24 per share in annual dividends for years.
Reliability is nice if you’re in retirement, but growth can also be an important factor in the equation.
At the current AFIC share price, it has a fully franked dividend yield of 2.8%. That’s not a terrible yield, but I’m not expecting dividend growth for at least the next couple of years, particularly as mining profits settle back down after the iron ore boom.
Is AFIC a great option for long-term investing?
If investors are looking for something they can buy and hold for 30 years, I reckon AFIC would be one that is still around, probably paying a dividend. It’s not a bad option at all.
It has low costs (just 0.14% per year) and a decent dividend yield. The portfolio returns have been better than its benchmark in recent years, which is good.
However, there isn’t likely to be strong capital growth from here, simply because of the types of businesses that have a large weighting in the portfolio right now. That could change in the future.
The actual value offered by AFIC doesn’t seem compelling either. At the end of August 2021, the before tax net tangible assets (NTA) – the underlying value – was $7.71. That compares to today’s share price of $8.50. A sizeable premium.
I’d prefer to own AFIC over cash, however there are other ASX dividend shares that I’d prefer to buy for the long-term.
