Earnings Surge but Dividend Steady for AFIC

By Glenn Dyer | More Articles by Glenn Dyer

Unlike its smaller associate Djerriwarrh Investments, Australian Foundation Investment Co (AFIC) did not lift the company’s interim dividend, despite a surge in income and earnings.

Djerriwarrh lifted its interim 28.6% to 6.75 cents a share but AFIC left its payout steady at 10 cents a share from the level a year ago.

That was despite a 68% surge in revenue from operating activities to $161.8 million, a rise of $65.6 million. (This excluded capital gains on investments).

Profit after tax was $146.0 million, up 73.5% on the previous corresponding period’s $84.1 million.

Profit after tax attributable to members was $146.0 million (up 74.5% on the previous corresponding period’s $83.7 million).

The shares eased 1.5% to $8.51, perhaps in a mild case of disappointment about the steady dividend.

Investment income for the six months to December 31 was $159.4 million, up from $93.8 million in the corresponding period last year.

“The biggest increases came from the major banks, Macquarie Group, and BHP and Rio Tinto as a result of previous very strong iron ore prices. A number of companies in the portfolio also reinstated dividends during the half year, which included James Hardie Industries and Ramsay Health Care,” AFIC explained in Monday’s ASX release.

“Reflecting the quality of companies in the portfolio during these uncertain times, AFIC’s portfolio was up 6.9% for the six months to 31 December 2021 compared with the S&P/ASX 200 Accumulation Index, which was up 4.6% over the same period. These figures include the benefit of franking credits, with AFIC’s performance numbers after costs.

Directors said companies in the portfolio that contributed strongly to returns through the six-month period were Macquarie Group, Sydney Airport, Mainfreight, James Hardie Industries and Goodman Group.

They said that short term volatility provided attractive prices to increase AFIC’s holdings in Transurban, Coles Group, CSL, Goodman Group, Domino’s Pizza Enterprises and BHP, where we consider long term prospects for all these companies remains strong.

“Transurban will be a significant beneficiary as economies gradually reopen, leading to increased traffic across its road transport network, while improved mobility will enhance plasma collection volumes for CSL,” directors explained.

Initial positions were taken in JB Hi-Fi and WiseTech Global. JB Hi-Fi is the largest consumer electronics retailer in Australia and New Zealand. While primarily providing attractive income to the portfolio, we expect the consumer electronics category to continue delivering meaningful growth.

WiseTech Global is a leading developer and provider of software solutions to the global logistics industry facilitating customers to digitise their freight forwarding operations.

AFIC sold out of its stakes in Qube Holdings, APA Group, Lifestyle Communities, Origin Energy and Altium, “considering each company’s long-term prospects increasingly challenged as competitive intensity increases.”

It also exited its holding in Milton Corporation as a result of the takeover by Washington H. Soul Pattinson.

So far as the outlook is concerned, AFIC directors said, “Our strategy of owning a diversified portfolio of quality companies that are well placed to deliver earnings growth over the medium to long-term remains appropriate. While market volatility may emerge, short term periods of uncertainty often present good buying opportunities for investors focused on a company’s long-term prospects. The portfolio is soundly positioned despite the spectre of rising interest rates and heightened global uncertainty.”

 

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About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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