Is Australian Foundation Investment Co.Ltd. (ASX: AFI) the best long-term investment on the ASX?
If you haven't heard of AFIC before, it's a listed investment company (LIC) that has been operating since 1928. Its job is to invest in Australian and New Zealand businesses on behalf of its shareholders.
It aims to provide shareholders with attractive investment returns through a growing stream of fully franked dividends and capital growth over the long-term.
The dividends are one of the main reasons to like AFIC. Shareholders haven't seen a dividend cut this century, it has either been increased or maintained every year. That's excellent income security, but the dividend hasn't grown much in the past few years.
How AFIC performs is dictated by the strength of its underlying holdings. Its top holdings include Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), Transurban Group (ASX: TCL), Macquarie Group Ltd (ASX: MQG), Wesfarmers Ltd (ASX: WES), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).
The banks haven't done much in recent years and some of them recently announced dividend cuts.
AFIC's returns have been solid, but it has underperformed the S&P/ASX 200 Accumulation Index over the past year, five years and ten years. Including franking, over the past year AFIC's net return has been 27.5%, 10.1% per annum over five years and 9.8% per annum over the past 10 years.
If the underperformance continues then investors wanting similar returns to the ASX 200 may as well pick BetaShares Australia 200 ETF (ASX: A200).
But, like the low-cost ETF providers, AFIC has a very low management fee cost of just 0.13% per year with no performance fees. This should be an attractive feature to investors who want to limit their investment fees.
Foolish takeaway
For most of the year AFIC has been trading at a discount to its net assets, but now it seems to be at a slight premium, so it's not as good value as it was before.
If you want very reliable dividends then AFIC could be one of the better choices on the ASX, but I think it makes sense to go for the best total returns, so it's not at the top of my watchlist.
