The large listed investment company (LIC) Australian Foundation Investment Co Ltd (ASX: AFI) released its FY26 half-year result yesterday, revealing a number of interesting S&P/ASX 200 Index (ASX: XJO) share investment choices it thinks could help it lift performance.
For example, AFIC decided to trim its Commonwealth Bank of Australia (ASX: CBA) and Wesfarmers Ltd (ASX: WES) share positions on valuation grounds. It hopes to invest in those names if they come down to a more appealing price, according to AFIC.
There were a few ASX 200 shares that AFIC invested. It said its buying was concentrated in two blue-chip companies where it sees an attractive dividend yield combined with high-quality and attractive valuation. Let's take a look at what AFIC liked about them.
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Telstra Group Ltd (ASX: TLS)
AFIC said that Telstra shares remains the dominant leader in an attractive industry that continues to be driven by a growing population's increasing usage of data.
The investment team believe ASX 200 telco share returns are improving and the balance sheet is in good shape, which should result in a high fully franked dividend yield that AFIC believes can grow over time.
Woolworths Group Ltd (ASX: WOW)
The ASX supermarket share has gone through a rough time as it underperformed Coles Group Ltd (ASX: COL) shares.
AFIC noted that Woolworths has recently delivered some "disappointing" financial results because of poor execution in its core supermarkets business.
The LIC believes the ASX 200 share's issues are temporary and this has given AFIC the opportunity to invest in a high returning, defensive business that provides its portfolio with a "good mix of fully franked dividend income plus growth".
Sigma Healthcare Ltd (ASX: SIG)
AFIC also revealed that it continues to build its investment in Sigma Healthcare shares in a patient and disciplined manner by taking advantage of some recent short-term underperformance in the share price. The below chart shows how the ASX healthcare share has been volatile recently.
Following the merger with Chemist Warehouse, Sigma Healthcare is now Australia's leading retail pharmacy franchisor, distributor and wholesaler.
AFIC thinks the ASX 200 share has a strong track record of execution with double-digit revenue growth over the past two decades.
The ASX healthcare share continues to have a long growth runway, according to the LIC, as it operates in an attractive, strongly growing healthcare and beauty retail category in which it is winning market share. AFIC said Sigma Healthcare primarily offers its portfolio an attractive level of capital growth alongside modest, albeit strongly growing, dividends.
