Are Argo shares a good long-term investment?

Is Argo Investments Ltd (ASX: ARG) a good long-term investment?

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The Argo Investments Limited (ASX: ARG) share price has a solid 2019 so far. Shares of Argo started the year at $7.58 but today are (at the time of writing) swapping hands for $8.19 – a gain of just over 8% for the year (not including dividends). So is this ‘old-school’ ASX company a good long-term investment?

Lets take a closer look at Argo.

What does Argo do?

Argo is one of the oldest listed investment companies (LICs) on the ASX, as well as having the distinction of being the second largest behind Australian Foundation Investment Co. Ltd (ASX: AFI). Argo was started in 1946 by an accountant and a solicitor and, interestingly, was chaired by Aussie cricket legend Sir Donald Bradman from 1982 to 1984.

Like many of the ‘old-school’ ASX LICs, Argo is renowned for a conservative, balanced and steady investment portfolio that aims to provide modest capital growth, as well as a substantial and rising stream of fully franked dividends. Argo’s current portfolio (as of 30 June) comprises around 100 stocks, LICs and real estate investment trusts (REITs). Some of the top holdings include Macquarie Group Ltd (ASX: MQG), Rio Tinto Ltd (ASX: RIO) and CSL Ltd (ASX: CSL).

Should you be a long-term Argonaut?

Greek mythology aside, there are many reasons to like Argo as a company. Being an LIC, Argo (of course) charges a management fee, but Argo’s fee of 0.15% is very low in comparison to some of its peers. Another reason I like Argo is that the company regularly offers share reinvestment discounts for those participating in its dividend reinvestment program (DRIP). For the latest dividend, shareholders were offered a 2% discount. This discount could add up if you reinvested dividends for many years, which is another reason Argo can make a good long-term buy.

At current prices (at the time of writing), you can pick up a share of Argo for $8.19, which is a slight discount to Argo’s current net tangible assets (NTA) of $8.42 per share. Another great advantage of LICs are periodic opportunities to buy shares at a discount, and Argo’s current prices are offering this up on top of a grossed-up 5.6% dividend yield.

Foolish takeaway

Although recently Argo has underperformed the All Ordinaries Total Return Index (XAOA), if you look over a 20-year horizon, Argo comes out on top, with an annualised performance (after fees) of 9% versus the index at 8.7%. This makes Argo a solid long-term investment in my books. It is worth consideration as a ‘core’ holding of an investment portfolio, or just as a ‘passive’ investment vehicle for those who don’t want to get their hands dirty with individual shares.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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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