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Why Argo is my pick of the old school LICs for dividends

If I had to choose one of the old school listed investment companies for my portfolio it would be Argo Investments Limited (ASX: ARG).

Don’t get me wrong, Australian Foundation Investment Co.Ltd. (ASX: AFI) and Milton Corporation Limited (ASX: MLT) would also be adequate choices, but Argo would be my pick of the bunch.

All of them offer relatively similar choices to investors. They all have low management fee costs. They all have reasonably similar portfolios. They are all a lot older than me.

If I were going to invest in one of the old LICs I would do it to get more exposure to large ASX blue chips, a decent dividend yield and stable dividend payments. But over the longer-term I’d want growth of the dividend as well.

Although inflation is low at the moment, it still exists. If our income doesn’t grow too then we’re losing buying power.

AFIC’s dividend has been flat over the past few years. Milton’s dividend has been essentially flat too except for the decent increase in FY19. But Argo has steadily increased its dividend over the past five years. It doesn’t need to be big increases, just enough to at least account for inflation. Argo ticks the main box for me. 

Argo has a grossed-up dividend yield of 5.5%. I think this is low enough to be sustainable and keep growing, whilst being high enough to be an attractive source of dividends compared to other options on the ASX as well as term deposits.

Foolish takeaway

Argo isn’t trading at a particularly attractive price at the moment, it was probably better just before the federal election. I think there are even better dividend options out there for growth.

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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.