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HY22: AFIC (ASX:AFI) share price drops despite dividend stability

The Australian Foundation Investment Co. Ltd. (ASX: AFI) (AFIC) share price is down after the LIC released its FY22 half-year result.

AFIC is one of the oldest and largest listed investment companies (LICs) around, providing annual dividends to shareholders.

AFIC’s HY22 result

The LIC revealed that operating revenue rose 68.1% to $161.8 million. This excludes capital gains on investments. For shareholders, profit after tax rose 74.5% to $146 million.

There was a recovery of dividend income from many of its major investments. It included bigger dividends from: Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA), Macquarie Group Ltd (ASX: MQG), BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

A number of companies also re-instated dividends including James Hardie Industries plc (ASX: JHX) and Ramsay Health Care Limited (ASX: RHC).

One of the main benefits of investing with AFIC is its low operating cost. Its management expense ratio for the period, annualised, was 0.15% with no performance fees.

Outperformance

A period of outperformance in recent times by AFIC’s portfolio has meant it can now show it has beaten its benchmark – the S&P/ASX 200 Accumulation Index, including franking.

Over six months, the AFIC net asset per share growth plus dividends, including franking, net performance was 6.9%, outperforming the index by 2.3%. The last year shows a AFIC portfolio return of 22.4%, outperforming the index by 3.7%. Over the past decade, the AFIC portfolio return of 12.5% has been 0.1% better per year than the index.

In other words, it has been doing pretty well. Time will tell whether it can keep this up.

AFIC dividend

The AFIC board of directors decided to declare an interim dividend of $0.10 per share, fully franked. This was the same as last year. It will be paid on 25 February 2022.

It has been maintaining its ordinary dividend for a number of years.

Outlook

AFIC noted that the level of economic activity has improved materially from the pandemic-induced lows of mid-2020 putting interest rate increases back on the agenda. While the timing of these increases remains uncertain US interest rates have already started to move upwards leading to increased volatility in equity markets.

AFIC said that it remains well positioned to purchased its preferred companies should attractive opportunities present themselves in these conditions.

Is the AFIC share price an opportunity?

The LIC said that its underlying net tangible assets (NTA) per share – the underlying value – of the investment portfolio at 31 December 2021 was $7.76. The current AFIC share price of $8.53 is a 10% premium to that figure, so it seems pretty relatively expensive at the moment.

It’s a quality LIC, but there are other ASX dividend shares that could offer stronger long-term income.

If you’re looking to learn how to do your own ASX company valuations, take our free share valuation course, which takes you through 6 common share valuation techniques, step by step.
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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.
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