Australian Foundation Investment Co Ltd (ASX: AFI) (AFIC) stock represents a compelling listed investment company (LIC) that has been operating for approximately a century. It has certainly demonstrated its longevity.
I think it's a worthwhile investment vehicle for long-term wealth-building. That's because it owns a portfolio of largely ASX blue-chip shares, such as Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), CSL Ltd (ASX: CSL), Macquarie Group Ltd (ASX: MQG), and Wesfarmers Ltd (ASX: WES).
There are a few things that I think investors need to know about this investment.
Impressive dividend credentials
I think AFIC compares well to other diversified options on the dividend side of things. At the end of February 2025, the Vanguard Australian Shares Index ETF (ASX: VAS) had a partially franked dividend yield of 3.5% (and it's currently approximately 3.6%). That's not bad at all.
AFIC has a fully franked dividend yield of 3.7%, giving owners of AFIC stock stronger after-tax passive income than the VAS ETF.
Not only that but because of its LIC structure, the company's board of directors are able to decide on the level of dividend payments.
The company has maintained or grown its annual ordinary dividend each year for decades. While dividend stability is not guaranteed, AFIC is well-placed to continue the dividends because of its large profit reserve.
Very low costs
One of the main benefits of owning AFIC stock is the very low management costs. Plenty of active fund managers charge an annual fee of at least 1% as well as outperformance fees if they outperform their benchmark.
It's a very different story with AFIC.
The LIC has an annual management fee of 0.15%, and there are no additional fees (including no performance fees).
I think those costs are competitive compared to some of the cheapest ASX ETFs, such as the VAS ETF.
NTA discount
An interesting quirk with LICs is that they can trade at a premium or discount to the underlying value of their portfolio. ETFs, on the other hand, are meant to trade at their net asset value (NAV).
So, it's possible to pick up AFIC stock at a cheaper price than its 'real' underlying value. That's currently the situation with the LIC – it's trading at a sizeable discount to the net tangible assets (NTA).
The current AFIC share price is sitting at a 6% discount to the pre-tax NTA value of $7.66 as at 14 March 2025. I think that's quite an appealing discount at a time when the RBA interest rate could reduce further in the next 12 months, making bank savings seem less attractive.
