Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) share price a buy during the coronavirus share market volatility?
AFIC is a listed investment company (LIC) which has been operating for close to a century. Its job is to invest in other shares on the ASX for the benefit of its shareholders.
Well, the first thing to consider is: how much has it actually fallen?
Since 21 February 2020 the AFIC share price has fallen 26% compared to the S&P/ASX 200 Index (ASX: XJO) which has fallen 33%. On that measure it seems to have provided investors with some capital protection. The AFIC share price is generally less volatile than the market itself even if its returns match (or underperforms) the ASX.
What has happened to the dividend yield?
Pleasingly for new investors, when a share price decreases the prospective dividend yield increases.
AFIC has paid an ordinary annual dividend of 24 cents per share each year for several years. At the current share price this equates to a grossed-up dividend yield of 6.4%.
The LIC has maintained or grown its dividend every year this century. It could continue to be a solid dividend payer through this period as long as it has the profit reserves to do so. Hopefully its investments keep paying their dividends like normal.
What are some of its top holdings?
At the end of February 2020 its top holdings were some of Australia's largest businesses including CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC) and Transurban Group (ASX: TCL).
The ranking of these positions may have changed in recent weeks.
Is it a buy?
I like that it has outperformed the S&P/ASX 200 Accumulation Index over the past year. A week ago the pre-tax net tangible assets (NTA) per share was $5.53. The NTA would likely have dropped to around $5 or so after another double digit fall for the ASX. If that's the case then AFIC's share price is trading at a bit of a premium to its underlying assets and I wouldn't call it a great buy, even if the share price is lower than it was before. I think there are better options.
