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AFIC (ASX:AFI) share price rises on dividend increase in HY23 result

The Australian Foundation Investment Co Ltd (ASX: AFI), or AFIC, share price is higher after the LIC announced a dividend increase in its HY23 result.

AFIC is the largest and one of the oldest listed investment companies (LICs) on the ASX, it’s around a century old.

HY23 result

These are some of the highlights from the report for the six months to 31 December 2022:

  • Net profit after tax (NPAT) was $163.7 million, up 12.2% compared to last year
  • The 6-month portfolio return, including franking credits, was 7.1% (lower than the 10.8% return for the S&P/ASX 200 Accumulation Index, including franking)
  • The 12-month portfolio return, including franking credits, was negative 6.6% (lower than the 0.5% return for its benchmark)
  • The interim dividend per share was increased by 10% to 11 cents per share

AFIC explained that it underperformed the index because of the decline of the valuation of many high-quality companies from previous “very high levels”. Examples given were ARB Corporation Limited (ASX: ARB),Ā Transurban GroupĀ (ASX: TCL) and James Hardie Industries plc (ASX: JHX).

The investment team are “convinced about the prospects for these companies despite the recent decline in share prices. All of these companies have a long track record of excellent financial discipline delivering strong shareholder returns.” It’s these beaten-up names that could drive the AFIC share price forward from here.

It also saw underperformance because of its limited exposure to energy and lithium ASX shares. Coal prices shot higher after Ukraine was invaded by Russia.

ASX shares it has been investing in

The LIC revealed that it has increased its holdings inĀ BHP Group LtdĀ (ASX: BHP),Ā Santos LtdĀ (ASX: STO), Mirvac Group (ASX: MGR),Ā Goodman GroupĀ (ASX: GMG),Ā Seek LtdĀ (ASX: SEK), EQT Holdings Ltd (ASX: EQT) andĀ Woolworths Group LtdĀ (ASX: WOW).

AFIC has also started an investment position inĀ Breville Group LtdĀ (ASX: BRG) which could achieve profit growth thanks to “product innovation and has very strong global distribution.”

Final thoughts on the AFIC share price

It’s great to see that AFIC has finally grown its dividend after many years of the same interim payment.

However, the AFIC share price is probably trading at a sizeable premium to the underlying assets (called the net tangible assets (NTA)). I’d rather buy when it’s at a discount, otherwise it could make more sense to buy the Vanguard Australian Shares Index ETF (ASX: VAS) or similar LICs that are at a discount.

I think AFIC is a decent option for stable dividend income. We’ll see how the portfolio performs in this higher interest rate environment now that the rate rises are seemingly coming close to the end.

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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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