Australian Foundation Investment Company (AFI) has met guidance for a lift in interim dividend, after a modest 4.7% rise in underlying interim earnings.
The lift in the interim payout was foreshadowed in the 2013-14 full year result last August. The new interim dividend is 9c a share.
AFIC said net profit fell 3.7% to $132 million for the six months to December 31, but the previous corresponding result of $137 million was boosted by one-off gains totalling $11 million linked to Brambles and Amcor demergers.
Revenue from operating activities was $146.1 million, down $4.3 million or 2.8% from the previous corresponding period.
This excludes capital gains on investments. The previous corresponding period included those $11.million in demerger dividends from the Brambles/Recall and Amcor/Orora demergers.
Excluding those one-off gains, AFIC’s profit was up 4.7% for the half year, which was a better performance than from stablemates Mirrabooka Investments and Djerriwarrh investments for the same period.
"Despite a promising start to the financial year the market was significantly impacted by the fall in iron ore and oil prices as well the increased nervousness about global economic conditions outside of the US,” directors explained yesterday.
"AFIC’s portfolio has not been immune from this but as a long term investor we remain confident the portfolio is well positioned in quality companies with strong balance sheets,“ the company added.
AFIC said its portfolio return for the 6 months was 1.5% with strong contributions from Commonwealth Bank, Telstra, Amcor and Transurban.
These were offset (not unexpectedly) by the weak performance of resource and energy companies in the portfolio such as BHP Billiton, Santos and Oil Search.
"The S&P ASX 200 Accumulation Index over this period was up 2.5%, although the Resources Accumulation Index was down 15.1%. The 12 month return for AFIC was 4.2% versus the S&P ASX 200 Accumulation Index return of 5.6%,” the company explained in yesterday’s release.
"Consistent with its approach as a long term investor, the 10 year return to 31 December 2014 for AFIC was 8.4% per annum versus the Index return of 7.6% per annum. AFIC’s performance numbers are after expenses and tax paid whereas the Index does not have expenses or tax,” AFIC said.
AFIC said despite the weak market conditions and portfolio performance, it continued to grow the diversity of the portfolio with new additions through IPOs such as Regis Healthcare, Healthscope, Ashley Services and the purchase of a holding in Cover-More Group.
"Major additions to existing holdings were CSL, AGL Energy via their capital raising, Asciano and Japara Healthcare,” the company added.
Looking to the rest of the financial year and 2015 as a whole, AFIC directors described the Australian sharemarket as “currently a challenging place to invest”.
"Stocks with high dividend yields and/or a reliable earnings outlook such as in health, telecommunications and infrastructure have enjoyed strong share price growth. Also companies with exposure to US dollar earnings have risen as the US dollar has strengthened.
"Whilst value may well be starting to emerge in the resources and energy sectors and related service companies as investors have retreated from these areas, we are still cautious.
"As long term investors we can afford to be patient. We currently have cash of $154 million to invest.
"The choppy markets we have been experiencing inevitably provide opportunities to acquire sound companies at attractive prices as other investors react to short term conditions.
"From time to time there are also opportunities from the active market in new companies seeking to be publically (sic) listed,” directors added.
The company said its Dividend Reinvestment Plan (DRP) and Dividend Substitution Share Plan (DSSP) are again available.
The price 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 last date for the receipt of an election notice for participation in the DRP & DSSP is 5pm (Melbourne time) on February 10, 2015.
AFIC shares eased a cent to $6.03 yesterday.
