The Motley Fool

3 reasons why I’m very interested in this company’s capital raising

There are few shares on the ASX with a more noble existence than Future Generation Investment Company Ltd (ASX: FGX).

It’s a listed investment company (LIC) that invests in 23 unlisted unit trusts across 20 of the best Australian fund managers including Bennelong, Paradice, Eley Griffiths, Regal Funds and Wilson Asset Management.

The idea is that 1% of Future Generation’s NTA is donated annually to youth-focused charities – hence the ‘future generation’ part of the name.

Here are three reasons why I’m very interested in the capital raising:

1: A good philanthropic cause

Many detractors of capitalism say that everyone in the finance world is greedy and only care about themselves. The 1% of NTA donation adds up to millions of dollars every year for youth charities, and the donation amount is growing.

As a shareholder, I like that in this donation format it’s not just a once-off donation, as Future Generation gets bigger the donations will get bigger every year too.

Every Australian youth is important. Giving young people hope and support is exactly what they need to be good contributors to society, rather than facing difficult circumstances by themselves. Helping people reach their full potential is better for everyone.

2: Shareholders keep the outperformance

The donation ‘fee’ is instead of management fees or performance fees, meaning if its overall portfolio outperforms then shareholders benefit and keep the performance difference.

Over the past year Future Generation’s gross portfolio return was 18.5%, outperforming the S&P/All Ordinaries Accumulation Index by 2.5%. Since inception in September 2014 its gross performance has outperformed the benchmark by an average of 3% per annum.

3: Growing dividend stream

One of Future Generation’s aims is to “provide an increasing stream of fully franked dividends.” This is a pleasing way to reward shareholders and provide certainty of the income, as long as the profit reserves are there.

It has increased its dividend each year since 2015 and it currently has a grossed-up dividend yield of around 5%.

So what’s the capital raising?

Future Generation is offering existing shareholders a share purchase plan (SPP) where they can buy parcels of shares valued at $500, $1,000, $2,500, $5,000, $7,500, $10,000, $12,500 or $15,000. The maximum each shareholder can buy is $15,000.

The price is yet to be determined, but it will be the pre-tax NTA of Future Generation at 30 September 2018 less the fully franked dividend of 2.3 cents per share to be paid on 26 October 2018.

Foolish takeaway

Whilst the SPP price won’t be at a bargain discount like some other LICs are currently priced, getting more shares of this philanthropic market-beating investment vehicle sounds good to me.

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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO. 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.