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Australia’s second largest LIC reports: profit up, dividend up

The last 12 months have been kind to Aussie investors. Economic growth is chugging along and most of corporate Australia has reported positive results.

For income-focused investors, this has translated into another steady, but satisfying year of dividend growth. And so it is with Argo Investments Limited (ASX: ARG).

The company reported increased income from its portfolio of 3.5%, translating into an earnings per-share increase of 2%. Far from exciting, but the majority of its shareholders are investing for a diversified dividend stream which provides stability of earnings and grows over time.

Argo increased its dividend again, while the management expense ratio (MER) declined from 0.16 to 0.15% over the year.

From the company:

Argo’s Managing Director, Mr Jason Beddow, said that the Company was pleased to advise that for the sixth year in a row Argo’s annual dividend has been raised and that the 31.5 cents per share declared this year is another record high for Argo.

“Dividend increases from Macquarie Group, BHP Billiton and Rio Tinto boosted our revenue this year, which helped to deliver Argo’s highest ever full-year dividend,” he said.

On performance:

Despite ongoing geopolitical uncertainty, synchronized economic growth in most regions of the world fuelled another very strong year for equity markets. The Australian market was no exception, although the underlying sector performance varied considerably, with the large banks and Telstra weaker, while Metals & Mining and Technology rose sharply.

Argo holds an underweight position in Metals & Mining, and more particularly the smaller and mid-size resources companies, which contributed to underperforming the benchmark index this year. This positioning is not unusual for Argo due to our general preference for companies that can generate dividend income, and it does sometimes result in underperformance when particular sectors are in favour. Argo’s investment (NTA) performance returned +10.2% after all costs and tax over the year.

Portfolio

The company added to its holdings in Event Hospitality and Entertainment Ltd (ASX: EVT), Ramsay Healthcare Limited (ASX: RHC), Boral Limited (ASX: BLD) as well as Suncorp Group Ltd (ASX: SUN) and Oil Search Limited (ASX: OSH).

Argo also reduced its holdings in BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Woolworths Limited (ASX: WOW).

Outlook

The company has been investing in businesses which have exposure and operations outside of Australia, but shares in such companies are being pushed up to expensive valuations as investors chase growth.

Out of the major LICs, Argo’s portfolio appears slightly more diversified between sectors, with underweight positions in the banks and resource companies, which seems prudent due to the concentration in the Australian market.

In any case, an investment in Argo is one for the bottom drawer, with its earnings and dividends being driven higher over time with the growing profitability of Australian companies in general, due to its wide diversification.

Foolish takeaway

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Motley Fool contributor Dave Gow owns shares of Argo Investments Limited and Ramsay Health Care Limited. The Motley Fool Australia owns shares of and has recommended Event Hospitality & Entertainment. The Motley Fool Australia has recommended Ramsay Health Care 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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