Shareholders in Australian Foundation Investment Company had some good news yesterday in the Melbourne-based investment group’s interim results – a special dividend of 8 cents a share on top of the unchanged interim of 10 cents a share.
The total interim payout of 18 cents a share is more than the final dividend for the 2018 financial year of 14 cents a share (fully franked).
AFIC said revenue was up 62.5% for the half to $250.3 million (from $96.3 million) because of the Coles demerger and the huge buybacks from BHP and Rio Tinto.
The buybacks from the two mining giants alone delivered more than $120 million of bonus payments onto the company’s coffers in the six months.
This move points to similar news of a special payout for shareholders in other listed investment companies such as Adelaide’s Argo Investments and Sydney’s Milton Corp which have also been big shareholders in BHP, Rio and Wesfarmers.
After-tax profit was $239.8 million up 75.4% on the previous corresponding period’s $136.7 million.
The fully franked interim of 10 cents a share is payable on February 25. It is also paying that special dividend of 8 cents per share to distribute the proceeds of the BHP and Rio buy-backs. It will also be paid on February 25. Books close on February 11.
AFIC also is continuing its dividend reinvestment plan with a 2.5% discount.
The special payout will soften the blow of AFIC’s small underperformance in the six months to December and over all of 2018.
Directors said yesterday that the sharp falls in the market towards the end of the period meant the six-month portfolio return, including franking, was negative 6.4%. For 12 months including franking, it was negative 2.3%.
That was a little worse than the performance of the key comparator for the company, the ASX 200 Accumulation Index. Over the two these periods, including franking, that index fell 6.2% and 1.4% respectively. AFIC’s performance numbers are after costs.
Directors said that companies in the portfolio that contributed positively to relative returns through the six-month period included Mainfreight, Brambles, TPG Telecom, Qube Holdings, and Transurban.
“In contrast, participation in the BHP and Rio Tinto off-market buy-backs, which had the advantage of generating significant franking credits for the Company, provided some headwind to performance as holdings were sold at a 14% discount to the market,” directors pointed out.
“Major sales arose because of participation in the Rio Tinto and BHP off-market share buy-backs (AFIC was previously well overweight the index in Rio Tinto).
“There was also a reduction in holdings of AGL Energy, Washington H. Soul Pattinson and Perpetual. In addition, the Company disposed of its entire position in QBE Insurance Group and Bega Cheese during the period.
“More significant purchases included adding to holdings in James Hardie Industries, Transurban Group via participation in its rights issue to fund the WestConnex purchase, Adelaide Brighton, Reliance Worldwide, Woolworths Group and Sydney Airport, all of which have strong positions in their respective market segments.
“Purchases in Qantas Airways and CYBG plc (Clydesdale Bank) also involved call option strategies to help generate some additional income from these investments,” directors said.
AFIC shares were up 1.1% at $6.19 yesterday.
