Is the AFIC share price a buy?

Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) (AFIC) share price a buy?

AFIC is the largest listed investment company (LIC) on the ASX, it’s also one of the oldest LICs having operated since 1928. There aren’t many businesses on the ASX that are around a century old (or older).

The main aim of AFIC is to provide shareholders with attractive investment returns through access to a growing stream of fully franked dividends and capital growth over the longer-term.

It certainly has been a solid dividend payer for shareholders. It has maintained or grown its dividend every year over the past two decades.

However, its dividend has been flat for a few years. That’s largely because the income paid from its underlying holdings has also been quite slow too. The dividends of some of its largest holdings like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) have been mostly flat for the second half of this decade.

One of the best things about AFIC is that it has a very low annual management fee cost of 0.14% per annum, as well as having no performance fees. That should leave more returns for shareholders.

However, it has underperformed the S&P/ASX 200 Accumulation Index (including franking) over the past one year by 2%, by 2.8% per annum over five years and 0.4% per annum over ten years.

However, some of its other top holdings are generating pretty good returns like BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL) and Transurban Group (ASX: TCL), but not enough to make up the difference.

Foolish takeaway

Is AFIC worth buying? It’s trading at a little bit of a premium to the pre-tax February 2019 NTA and a large premium to the post-tax NTA, which isn’t great when you can buy the BetaShares Australia 200 ETF (ASX: A200) at NTA. Although the bond-like ordinary grossed-up dividend yield of 5.7% isn’t too bad.

However, if you’re looking for income I would much rather invest in one of these leading defensive ASX dividend shares instead.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. The Motley Fool Australia owns shares of National Australia Bank 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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