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Australian Foundation Investment Co. Ltd (ASX:AFI) profit jumps 13.7%

Australia’s largest listed investment company has released its full-year results to the market.

It was a solid year for Australian Foundation Investment Co.Ltd. (ASX: AFI), with its portfolio of companies performing well. Solid dividend increases were received from the portfolio, especially from its large resource holdings, such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

As released to the market:

Net profit was $279.0 million, up 13.7% from the previous year.

Earnings per share of 23.6 cents, up from 21.3 cents.

The Management Expense Ratio (MER) was 0.14% – the same as last year.

Net tangible assets (NTA) per share as at 30 June 2018, before allowing for the final dividend, of $6.27 per share (2017: $5.89).

A fully-franked final dividend of 14 cents per share, the same as last year’s final dividend.

Portfolio Performance:

Twelve-month portfolio return was 10.8%, and including franking, it was 12.7%. For the S&P/ASX 200 Accumulation Index, the respective figures were 13.0% and 14.6%

The best-performing companies in the AFIC portfolio outside the large resource companies were CSL Limited (ASX: CSL), Wesfarmers Ltd (ASX: WES), Macquarie Group Ltd (ASX: MQG), Oil Search Limited (ASX: OSH) and Woolworths Group Ltd (ASX: WOW).

The long-term performance of the portfolio, which is more in line with the company’s investment timeframes, was 6.5% per annum for the ten years to 30 June 2018, versus the Index return of 6.4% per annum.

Including the full benefit of franking, these returns are 8.5% per annum for AFIC and 8.0% per annum for the Index.

Outlook:

The company noted the subdued growth outlook for most large companies on the ASX. Because of this, AFIC has been investing more in small and mid-sized companies over the last couple of years, where growth in earnings and dividends looks more promising.

However, AFIC also mentioned that the shares of many companies experiencing solid growth are being pushed up to lofty levels. In any event, AFIC plans to only add to these shares when it makes sense to do so, and the company has also been increasing its holdings in quality companies such as CSL Limited and Macquarie Group Ltd.

The mix of companies in AFIC’s portfolio should drive good returns over the medium to long-term and enable it to deliver on its purpose of a growing dividend stream for shareholders.

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Motley Fool contributor Dave Gow owns shares of Australian Foundation Investment Company Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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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