One of the hardest things about investing is choosing which companies you want to invest in. Which industries should you choose? How much money should you invest in each company?
There are so many businesses out there on the ASX that sometimes you wish you could invest in all of them at once and I'm happy to say that there are investment options that allow you to do this. One option is the Vanguard Australian Share ETF or V300AEQ ETF Units (ASX: VAS) which tracks the S&P/ASX 300 (INDEX: ^XKO) (ASX: XKO).
However, I think an even better option would be the Australian Foundation Investment Co. Ltd. (ASX: AFI) (AFIC). It's a listed investment company (LIC) that manages a portfolio on behalf of shareholders. When you buy shares in AFIC you are buying a small piece of each investment AFIC is invested in.
So what is AFIC invested in?
The majority of its portfolio is invested in Australia's largest businesses. Its largest investments are Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), BHP Billiton Limited (ASX: BHP), National Australia Bank Ltd. (ASX: NAB) and Wesfarmers Ltd (ASX: WES).
AFIC is invested in the same companies as the ASX300, but it has made strategic differences with how much it holds of each business.
It also has a certain percentage of its business invested in smaller businesses which will hopefully allow it to outperform the market average over time.
What has been AFIC's long term performance?
Over the last five years its portfolio has returned an average per year of 9.8%. Over 10 years it has returned 5.2% but this was just before the GFC began in 2007.
How reliable are its dividends?
Thanks to its long term management and diverse portfolio it has been able to maintain or grow its ordinary dividend every year since 2001. This means it could provide stable income for shareholders and steady capital growth as well.
Time to buy?
At 30 December 2016 its net asset backing was $5.83 and the share price is currently trading around the same value at $5.89 – it's a bonus if you can pick up shares in LICs when they're trading at a discount. Over the long term, the AFIC share price should continue to grow and your investment will grow nicely if you compound your returns by re-investing the dividends.
AFIC has a grossed up dividend yield of 5.82%, which is good in this era of low interest rates. If you're looking for stocks with bigger dividends then you should check out our number one dividend stock for 2017.
