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Is AFIC (ASX:AFI) a great way to invest for the long-term?

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.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report — or get it emailed to you — for FREE by CLICKING HERE NOW or the button below.

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Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

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