The Motley Fool

Should this dividend share be at the top of your wishlist?

Australian Foundation Investment Co. Ltd. (ASX: AFI) is one of the oldest businesses on the ASX and could be described as a stalwart of the ASX just like BHP Billiton Limited (ASX: BHP) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

It has been operating as a listed investment company (LIC) since 1928 and has been investing for the long-term on behalf of shareholders ever since.

AFIC has a very low management fee of 0.14% per annum and there are no performance fees. There are few index-like ASX investments that have such a low cost.

It has been one of the most consistent dividend shares on the ASX over the past two decades. Since 2000 it has increased or maintained its dividend every single year during that time including through the GFC. It’s been bond-like with its defensive income, yet the income has also been growing at a rate faster than inflation over the longer-term.

However, perhaps the income has been too bond-like as the dividend hasn’t grown since FY16 and the last three years of dividends has been higher than the reported earnings per share (EPS).

Its NTA plus dividends total return has underperformed the S&P/ASX 200 Accumulation Index by 1.5% over the past year, 1.7% per annum over the past five years and 0.3% per annum over the past decade according to today’s market update.

AFIC’s performance is ultimately dictated by how well its underlying holdings do. Australia’s blue chips like Commonwealth Bank of Australia (ASX: CBA)BHP Billiton Limited (ASX: BHP) and Westpac Banking Corp (ASX: WBC) are finding it difficult to consistently churn out EPS growth of more than 5% at the moment.

Foolish takeaway

AFIC could be attractive for retirees with its consistent dividend and low management fee. However, Australia’s largest businesses are the ones with the least growth on offer. I think there are better dividend and growth options out there.

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company 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.