Is Argo the best LIC on the ASX?

Argo Investments Limited (ASX: ARG) is one of the biggest listed investment companies (LICs) on the ASX and one of the oldest, but is it one of the best?

Argo was set up in 1946, it has been managing people’s money ever since. Argo aims to create a diversified investment portfolio that provides long-term dividend growth and capital growth.

It has around 100 holdings, with 20 of the largest blue chips accounting for more than 60% of the Argo portfolio value and the dividend income. I’m sure you recognise the names of its largest holdings including Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Australia and New Zealand Banking Group (ASX: ANZ) and BHP Billiton Limited (ASX: BHP).

However, some of its other top 20 holdings don’t quite match up with the ASX 20 including Australian United Investment Company Ltd (ASX: AUI) and Milton Corporation Limited (ASX: MLT).

One of the best reasons to like Argo is its extremely low operating costs. It’s internally managed and its total operating costs were 0.15% of the average assets at market value for FY18. There are few investments on the ASX with a lower annual cost.

Another reason to like Argo is its steady dividend. Although the dividend hasn’t been increased or maintained every single year over the past two decades like some other investment companies, you can see the long-term growth over time and the dividend per share payout will likely have doubled between 2000 and 2019.

Foolish takeaway

Argo is currently trading with a grossed-up dividend yield of 5.9%. The underlying value of Argo’s portfolio per share was $7.42 at the end of November and it’s currently trading at $7.58 despite a fall today – so it seems to be trading at a premium.

Whilst Argo is a solid source of long-term dividend income for shareholders like retirees, its total returns may continue to be low as long as its biggest holdings like the banks are underperforming. I think there could be better shares out there for growth.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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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