The Australian Foundation Investment Company Ltd (ASX: AFI), or AFIC for short, is a popular choice for many passive ASX investors. A listed investment company (LIC), AFIC invests its capital on behalf of its shareholders.
As such, it's become a favourite over its long history for investors who just want a 'set-and-forget' type investment they can leave in the bottom drawer.
The popular alternative to this approach is, of course, the exchange-traded fund (ETF). ETFs have been around for far less than the 94-year-old AFIC. And yet they have exploded in popularity in recent years.
But index ETFs like the Vanguard Australian Shares Index ETF (ASX: VAS) rarely, if ever, pay fully franked dividends.
The Vanguard ETF's dividend distributions typically come partially franked. Since not all shares in the ASX 300 Index pay fully franked dividends every year, it's almost impossible for an index fund to give investors full franking credits. As a trust, an ETF can only pass through what it receives.
But is the same true of AFIC? Is this LIC the better choice for investors wanting to maximise the franking credits they can receive?
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Do AFIC shares pay fully franked dividends?
Well, this is one area an LIC like AFIC might have an advantage. Like all LICs, AFIC is a company, not a trust. As such, it pays company tax on its profits, the process that generates franking credits in the first place.
Additionally, AFIC also holds a portfolio of blue-chip ASX shares that it manages on behalf of its investors. Some of its current top holdings are franking credit-spewing companies like Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX BHP). When AFIC receives these franking credits, it can pass them straight on to shareholders.
But let's turn to the numbers.
So AFIC has a very long history of funding fully franked dividends. In fact, it hasn't missed a biannual dividend payment in at least 30 years. The last time AFIC didn't provide a fully franked dividend was way back in 1994. So, yes, we can say with relative certainty that AFIC pays fully franked dividends.
This is not guaranteed to continue into the future of course. But it would be a historically significant occasion if AFIC announced a future dividend that came with anything less than full franking.
Over the past 12 months, AFIC shares have paid out an interim dividend of 10 cents per share and a final dividend of 14 cents per share, a pattern the LIC has held to since 2020.
This gives the AFIC share price a dividend yield of 3.15% on current pricing, which grosses up to 4.5% with the value of those full franking credits.
