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Is the Australian Foundation Investment Co share price a buy?

The Australian Foundation Investment Co.Ltd. (ASX: AFI) share price has closed at $6.70 this afternoon, just shy of the all-time high reached earlier today of $6.79.

On this price, Australian Foundation Investment Company (AFIC) shares have now returned 10.56% to investors over 2019 so far (not including dividends), which I’m sure AFIC’s investors would be happy with, given this company’s reputation for slow and steady returns.

But is AFIC worth buying this week, given its elevated share price?

A refresher on AFIC

AFIC is one of the ‘old school’ Listed Investment Companies (LICs) on the ASX, and lives up to this reputation, given it was founded way back in 1928. Seeing it was able to survive the Great Depression just a couple of years later says a lot about its investing philosophy – AFIC is known to be the best friend of investors seeking stability and conservative investing.

The company’s investing portfolio consists primarily of ASX blue-chip stocks – ones chosen to provide robust and predictable earnings growth and dividends. You won’t find hot growth stocks like Afterpay Touch Group Ltd (ASX: APT) or Splitit Ltd (ASX: SPT) in AFIC’s portfolio. Rather, some of its current top holdings include clue-chips like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and CSL Ltd (ASX: CSL).

Is AFIC a good long-term investment?

Broadly, I think AFIC is a good option for your first investment or for anyone wanting to build wealth in a slow-and-steady kind of way. The company pays a decent fully franked dividend yield of 3.6% on current prices as well, although AFIC hasn’t increased this payout for a while now.

It is worth noting, however, that AFIC has failed to match or beat its index benchmark – the S&P/ASX200 Accumulation Index – over the past year, five years or ten years – as you can see in the graph below.

Source: Australian Foundation Investment Co. Ltd.

Foolish Takeaway

I think AFIC is a great business with a proud history and sound investing goals and principles. Investors have a lot to like in the company’s dividend as well, which it was able to maintain even though the GFC.

However, I wouldn’t expect market-beating returns over the coming years, and it is worth noting that an ASX200-tracking index fund might be a cheaper option with slightly better results.

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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 AFTERPAY T FPO and CSL Ltd. 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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