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Is this the safest stock on the ASX?

Trying to find ‘safe’ shares is almost the opposite of what shares are about. Shares are meant to be riskier than cash so that they can generate stronger returns.

However, if you are looking for that odd combination of safety and growth, then Australian Foundation Investment Co. Ltd. (ASX: AFI) (AFIC) could be the right option for you.

It’s a listed investment company (LIC) that invests in other shares on behalf of shareholders. In some ways, it’s almost like an index fund because it owns such a large number of different shares, although its top holdings do somewhat resemble the holdings of the ASX index.

For example, its five biggest holdings are Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), BHP Billiton Limited (ASX: BHP), CSL Limited (ASX: CSL) and Wesfarmers Ltd (ASX: WES). Its diverse asset holdings make it a lot safer than most other shares on the ASX.

It also has excellent ‘staying’ power. It has been in operation since 1928, meaning it’s been operating for nearly a century. Considering its investment holdings can change over time it could easily go on for another century.

A large part of AFIC’s earnings come from the dividends it receives, which means it can pay out its own good source of dividends. Australia’s companies pay out a higher proportion of their profit as a dividend, which benefits AFIC shareholders. It has maintained or grown its dividend each year over the past two decades.

The problem for AFIC shareholders is that the company isn’t invested much in ‘growth’ shares. That’s why the share price has only doubled during the past two decades, which is still good but many shares that are 20 years old (or much less) have done a lot better.

Foolish takeaway

AFIC is a good choice for investors who want a reliable source of dividends, but it won’t generate much growth for investors. It would be a solid choice for retirees who need cashflow, but I believe there are much better options for growth.

These top growth shares are also reliable blue chips, but I think they offer us much better growth potential.

Top 3 ASX Blue Chips To Buy In 2018

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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