Australian Foundation Investment Co (AFI), the country’s biggest listed invest company (LIC) has started the process to boost its war chest for the coming year as it searches for new investment opportunities.
Shareholders in AFI were yesterday promised a higher interim dividend for the current half year period, but also the chance to not only participate in the usual dividend reinvestment program, but a share purchase plan which is being reinstated after being off the scene for several years.
AFI (market cap around $6.1 billion) said in its 2013-14 profit statement that while the final dividend for the June half year was maintained at 14 cents (making a steady 22 cents for the year as a whole, fully franked), "the Board notes the increase in earnings provides scope to increase the dividend.
"It is the Board’s current intention to apply a 1 cent increase to the interim dividend to be paid in February 2015 to adjust the disparity between the interim and final dividends," directors said.
The company also said it had "initiated a share purchase plan for shareholders, which is due to close on 25 September 2014."
That will be done at a 2.5% to the weighted average of the AFI share price on the same basis as the DRP (five days up to and including the day the DRP closes). The shares issued will rank for dividends in the 2015-16 financial year.
The share purchase plan will be on top of the DRP and the Dividend Substitution Share Plan,"the price for both of which will be set at a 2.5% discount to the Volume Weighted Average Price of the Company’s shares traded on the ASX and Chi-X automated trading systems over the five trading days after the shares trade ex-dividend."
The DRP usually raises tens of millions of dollars a year in cash as shareholders take scrip instead of cash.
AFI 1Y – AFI to ask shareholders for cash and promises dividend boost
On top of that, the company is now offering the SPP and directors said yesterday the aim of the plan was to raise "additional equity for investment purposes."
The company had $69 million of cash on hand at June 30, down sharply from the $256 million at June 39, 2013.
Why the company needs the extra cash from the purchase plan can be guessed from directors’ comments in yesterday’s statement:
"Our expectation is that moving into the new financial year AFIC will continue to be provided with attractive opportunities to invest, which may include additional IPO’s and through the privatisation of government assets".
"Recent strong returns and low volatility suggest investors have become somewhat complacent about the potential for set backs," AFI said.
"However we believe risks are elevated.
"There is the ongoing reliance on low interest rates to support sentiment and growth and the potential for subdued earnings outcomes.
"At some point interest rates will rise, although the timing and impact still remains uncertain.
"There are also the risks of unanticipated geopolitical events. Turning to the 2013-14 performance, director said net profit attributable to members was $254.2 million, an increase of 4.8% from 2012-13.
Net operating result (which measures the income generated by the company’s multi billion dollar portfolio, primarily dividends) rose 8.5% to $254.2 million.
Revenue from operating activities was $284.9 million, an increase of 9.1% on 2012-13.
Directors said the market "remained buoyant over the year building further on last year’s strong performance."
"AFIC’s portfolio return for the 12 months was 17.3% compared with the S&P/ASX 200 Accumulation Index of 17.4%. Consistent with its approach as a long term investor, the 10 year return for AFIC was 9.8% per annum versus the Index return of 9.0% per annum. AFIC’s performance numbers are after expenses and tax paid.
"New additions to the portfolio included Qube Holdings, Washington H. Soul Pattinson, James Hardie Industries, TPG Telecom, Twenty First Century Fox, Japara Healthcare and Resmed.
"Major additions to existing holdings were Transurban, CSL, Telstra and Equity Trustees."
There were also a number of corporate actions through the year that resulted in changes to the portfolio.
The company picked up shares in Orora (the old Amcor Australasian assets), Scentre and Westfield Corp (from the revamp of the Lowy family’s empire).
"Major sales were some BHP Billiton from the Company’s buy and write portfolio and the complete disposal of GWA Group," directors said.