Why Did AFIC’s Profit Dip but Dividends Stay Steady?
Australian Foundation Investment Company reports a 4.6% decline in half-year profit but sustains its interim dividend with a special payout, while portfolio returns lag the benchmark.
- Half-year profit after tax down 4.6% to $147 million
- Interim dividend held at 12 cents per share plus 2.5 cents special dividend
- Portfolio return negative 2.0%, underperforming S&P/ASX 200 Accumulation Index
- Strategic portfolio adjustments including trimming overvalued stocks
- Cautious market outlook amid geopolitical uncertainty and high valuations
Profit and Dividend Highlights
Australian Foundation Investment Company Limited (AFIC) has reported a half-year profit after tax of $147.0 million for the six months ending 31 December 2025, marking a 4.6% decrease from $154.2 million in the prior corresponding period. Despite this dip, the company has maintained its interim dividend at 12.0 cents per share, fully franked, and declared an additional special dividend of 2.5 cents per share, also fully franked. This special dividend reflects the accumulation of franking credits generated through realised capital gains over recent years.
Portfolio Performance and Market Comparison
The company’s investment portfolio returned a negative 2.0% over the half-year, including the benefit of franking credits, underperforming the S&P/ASX 200 Accumulation Index, which posted a positive 4.2% return over the same period. Over the 12 months to 31 December 2025, AFIC’s portfolio returned 1.2%, significantly lagging the benchmark’s 11.5% gain. This underperformance was largely driven by declines in several core holdings such as CSL, ARB Corporation, James Hardie Industries, and CAR Group, alongside the absence of exposure to the booming small and mid-cap resources sectors.
Strategic Portfolio Adjustments
AFIC’s management has actively adjusted the portfolio, trimming stakes in overvalued blue-chip companies including Wesfarmers and Commonwealth Bank of Australia, while reducing exposure to Netwealth Group, Westpac, and National Australia Bank. The company fully exited its position in WiseTech Global due to governance concerns and a debt-funded acquisition, and scaled back its holding in James Hardie Industries amid increased risk from management turnover and a stretched balance sheet.
Conversely, AFIC increased investments in Woolworths Group and Telstra Group, attracted by their defensive qualities and attractive dividend yields. The company also added to healthcare giant CSL despite short-term pressures, and selectively bought into quality small-cap growth companies such as Life360 and Macquarie Technology Group. The international portfolio, valued at $170 million, continues to be refined towards a more concentrated set of holdings aligned with AFIC’s investment style.
Outlook and Market Commentary
AFIC’s board acknowledges the challenging market environment marked by geopolitical uncertainty and elevated market valuations. While the broader market delivered strong returns in 2025, particularly in resources and banking sectors, AFIC’s focus remains on long-term income and capital growth through a diversified portfolio of high-quality Australian equities. The company remains cautious but opportunistic, seeking to capitalise on market dislocations to acquire attractively valued stocks with sustainable dividend prospects.
Bottom Line?
AFIC’s steady dividend and strategic portfolio shifts signal resilience, but market headwinds and valuation risks loom.
Questions in the middle?
- How will AFIC balance dividend sustainability with portfolio underperformance?
- What impact will trimming major holdings have on future returns?
- Could AFIC increase exposure to high-growth sectors like resources or technology?
