Australian Foundation Investment Co.Ltd. (ASX: AFI) has reported its FY21 half year result to 31 December 2020.
AFIC is a listed investment company (LIC), it aims to invest in a diversified portfolio of Australian shares to provide attractive income and capital growth to shareholders over the medium to long term at a low cost.
What did it report?
The LIC giant reported that its revenue from operating activities was $96.2 million, down 38.9% compared to last year – this measure excludes the capital gains on investments.
Difficult operating conditions arising from the COVID-19 pandemic meant investment income for the six months to 31 December 2020 was $95.2 million, down from $164.1 million. The biggest reductions came from the major banks, BHP Group Ltd (ASX: BHP), Macquarie Group Ltd (ASX: MQG) and Transurban Group (ASX: TCL), while a number of companies in the portfolio did not pay a dividend during the half.
Net profit after tax for shareholders was down 42.6% to $83.7 million. Profit/earnings per share (EPS) dropped to just 6.9 cents. However, AFIC is able to fund its dividend from profit reserves which have been built up in previous years.
In percentage terms, AFIC’s portfolio’s return of 15.2%, including franking, outperformed the S&P/ASX 200 Index return of 13.7% (including franking). For the 12 months to 31 December 2020, the portfolio return, including franking, was 5.8%. The return from the S&P/ASX 200 Accumulation Index over the same 12 month period was 2.4%.
In other words, AFIC comfortably outperformed the ASX 200 index during 2020.
It also continued to have a really low management expense ratio, coming in at 0.10%, with no performance fees.
AFIC dividend
Despite EPS only being 6.9 cents, AFIC decided to pay an interim dividend of 10 cents per share. That means that AFIC’s rolling 12-month annual dividend is 24 cents per share.
Summary thoughts
It’s good to see that AFIC is generating outperformance again after a few years of underperformance before COVID-19 hit.
AFIC thinks its portfolio is well-positioned for whatever happens next with the economy and COVID-19. With a fully franked dividend yield of 3.2%, it doesn’t appear to be a terrible idea for income. However, it’s now priced at a double digit premium to its underlying value, the pre-tax net tangible assets (NTA) per share.
For dividend income, there are plenty of other ASX dividend shares I’d rather buy first like MFF Capital Investments Ltd (ASX: MFF) or Magellan Financial Group Ltd (ASX: MFG).
