AFIC Reports $293.5 Million Net Profit with 31.5 Cents Dividend

Profit Growth Amidst Market Headwinds

Australian Foundation Investment Company (AFIC) recorded a net profit of $293.5 million for the year ended 30 June 2026, marking a 3.0% increase from the prior year. Revenue from operating activities nudged up 1.2% to $331.9 million. Despite this growth, the company’s portfolio returned just 0.9% over the year, significantly underperforming the S&P/ASX 200 Accumulation Index’s 7.2% total return, including franking.

The underperformance was largely attributed to sector positioning and stock selection. AFIC’s underweight exposure to the Materials sector, which surged 52.1% driven by heavyweight miners like BHP and Rio Tinto, weighed heavily on relative returns. Overweight positions in Health Care stocks such as CSL, Cochlear, and ResMed, all of which suffered share price declines, further pressured performance. Additionally, holdings in companies like CAR Group, Seek, and REA Group faced headwinds amid market concerns over artificial intelligence’s disruptive impact.

Dividend Strategy Balances Stability and Special Payouts

AFIC’s Board declared a fully franked final dividend of 14.5 cents per share, unchanged from the previous year, alongside a fully franked special dividend of 2.5 cents per share. This keeps total dividends for FY26 steady at 31.5 cents per share, fully franked. The special dividend reflects the substantial franking credit balance accumulated from realised capital gains, which the Board sees as best distributed via special dividends without compromising ordinary dividend payments.

Notably, a New Zealand imputation credit of 4 cents per share is attached to the final dividend, enhancing value for NZ shareholders. The Board also elected to source 10 cents per share of the final and special dividends from capital gains, enabling some shareholders to claim a tax deduction. This dividend policy aims to balance income stability with tax efficiency, with further updates on capital management expected at the upcoming AGM.

Active Portfolio Management and Capital Moves

AFIC’s portfolio adjustments during the year included significant acquisitions such as Sigma Healthcare for $73.2 million and JB Hi-Fi for $53.8 million, adding exposure to growing sectors like healthcare retail and consumer electronics. New positions were also initiated in Pro Medicus and TechnologyOne after share price corrections, reflecting a focus on quality companies with long-term growth potential. Conversely, AFIC exited holdings in Sonic Healthcare, WiseTech Global, Worley, IDP Education, and Telix Pharmaceuticals due to deteriorating growth prospects.

The company also continued to trim large holdings in Commonwealth Bank and Wesfarmers, citing stretched valuations relative to portfolio size. The value of stock sales exceeded purchases, partly driven by AFIC’s on-market share buy-back program, which saw 35.4 million shares repurchased at an average price of $6.85, capitalising on the persistent discount to net tangible asset backing.

Balance Sheet and Expense Efficiency

AFIC’s net tangible assets per share stood at $7.93 before tax on unrealised gains, down from $8.33 the previous year. The company maintains a low management expense ratio of 0.14%, improving from 0.16% in FY25, underscoring its cost-efficient investment approach. Cash holdings decreased to $89.5 million, reflecting active capital deployment and share buy-backs.

The deferred tax liability on unrealised gains in the investment portfolio fell to $1.56 billion from $1.71 billion, consistent with portfolio revaluations and realised gains. AFIC’s capital management remains prudent, with undrawn short-term facilities totaling $150 million and no borrowings drawn at year-end.

Outlook Amid Valuation Concerns and Market Uncertainty

AFIC notes that while the Australian economy has shown resilience, the share market appears moderately expensive compared to long-term averages on price-to-earnings and dividend yield metrics. The forecast dividend yield for the broader market is 3.7%, below the 10-year average. AFIC’s diversified portfolio across Resources, Banks, and Consumer Staples is expected to sustain a solid level of fully franked dividend income.

Despite geopolitical tensions and inflationary pressures, AFIC remains confident in its portfolio’s ability to meet long-term investment objectives. The company plans to provide further updates on capital management and potential special dividends at its AGM on 1 October 2026.