The ASX dividend stock Australian Foundation Investment Co Ltd (ASX: AFI) has long been an effective option for passive income. At the current valuation, it looks like an excellent buy.
The business is Australia's largest listed investment company (LIC) – it focuses on large Australian blue-chip shares that can provide good returns for the AFIC portfolio.
For shareholders, the objective is to provide attractive investment returns through "access to a growing stream of fully franked dividends and enhancement of capital invested over the medium to long term".
I'll run through why I think this is a good time to invest in the ASX dividend stock.
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Very attractive valuation
As a LIC, the business regularly tells investors about what it's underlying value is. That can essentially be measured by the net tangible assets (NTA).
AFIC tells investors every week and every month what its NTA is, so we get a regular insight into the real value of the business.
At 31 August 2025, it had a pre-tax NTA of $8.34, so the current AFIC share price is trading at a discount of 13% to that figure. This is close to the largest discount it has traded at over the past decade.
I'm a fan of being able to buy quality assets for less than they're worth. A decade low when it comes to the discount seems appealing to me.
Dividend yield
In terms of the ordinary dividend, AFIC paid an annual dividend of 26.5 cents per share in the 2025 financial year.
The company also paid a special dividend of 5 cents per share, but I'm not expecting that to be repeated in FY26, so I'm not going to include that in the dividend yield calculation. The ASX dividend stock's payout has been extremely stable and predictable this century. I'm not expecting the LIC to reduce its dividend in FY26.
Thanks to the 16% fall of the AFIC share price since its peak in January 2022, as the below chart shows, the grossed-up dividend yield is now 5.2%, including franking credits. That's much better than what a 12-month term deposit is offering these days.
Diversification
One of the best reasons to like AFIC is because of how it gives investors significant diversification with a whole portfolio, it's not just a singular business like a bank, retailer or miner.
It has dozens of holdings including BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Wesfarmers Ltd (ASX: WES) and Goodman Group (ASX: GMG). These are high-quality businesses and leaders at what they do.
Pleasingly, there are five sectors with a weighting of more than 9%, including banks, miners, healthcare, industrials and other financials. That's a good spread of industries – it's more diversified than the S&P/ASX 200 Index (ASX: XJO) which is weighted towards banks and miners.
While I'm not expecting huge returns from the LIC, I think it can provide a mixture of pleasing passive income and long-term capital growth.
