AFIC Reports 0.9% Portfolio Return, Dividends Steady at 31.5 Cents

Profit Growth and Dividend Stability

Australian Foundation Investment Company (AFIC) posted a modest profit increase to $293.5 million for the year ending 30 June 2026, up from $285.0 million in 2025. Earnings per share rose slightly to 23.42 cents. The company held its final dividend steady at 14.5 cents per share fully franked, alongside a 2.5 cents special dividend, maintaining a total payout of 31.5 cents per share, consistent with the prior year.

This dividend policy aligns with AFIC’s long-standing objective to deliver stable to growing ordinary dividends over time, a commitment reflected in its dividend history spanning over two decades. The Board continues to manage franking credits prudently, with a portion of dividends paid from realised capital gains, enabling some shareholders to claim tax deductions.

Portfolio Performance and Market Dynamics

AFIC’s total portfolio return including franking credits was 0.9%, significantly trailing the S&P/ASX 200 Accumulation Index’s 7.2% return. Underperformance was concentrated in the first half of the financial year, influenced by sectoral headwinds and stock-specific challenges.

The Materials sector led the market with a 52.1% gain, buoyed by strong performances from BHP and Rio Tinto, which returned approximately 68% each. Energy stocks also benefited from geopolitical tensions, delivering a 14.5% sector return. Conversely, Healthcare and Information Technology sectors lagged, with declines of 36.2% and 37.0% respectively, driven by concerns over business model disruptions and artificial intelligence impacts.

Within AFIC’s portfolio, solid returns from Woolworths Group, Rio Tinto, ALS, Macquarie Group, and Coles Group partially offset weaknesses. The company’s underweight position in Commonwealth Bank, which fell 8%, also contributed positively. However, holdings in CSL, ARB Corporation, ResMed, CAR Group, REA Group, and Cochlear detracted from relative performance. AFIC retained these positions, citing confidence in their long-term prospects despite near-term challenges.

Active Portfolio Management and Positioning

AFIC maintained an active yet long-term investment approach, focusing on quality companies with balanced income and growth attributes. The company increased positions in mid and large-cap stocks such as Sigma Healthcare, JB Hi-Fi, Woolworths Group, Telstra Group, CAR Group, and REA Group. Sigma Healthcare emerged as the largest purchase, reflecting confidence in its growth trajectory post-merger with Chemist Warehouse.

New small-cap growth holdings were added following market sell-offs, including Life360, Temple & Webster, HUB24, Objective Corporation, and Pinnacle Investment Management, diversifying the portfolio further. Conversely, AFIC exited positions in Sonic Healthcare, WiseTech Global, Worley, IDP Education, and Telix Pharmaceuticals due to deteriorating growth outlooks.

Trimmed holdings included Commonwealth Bank, Wesfarmers, National Australia Bank, Westpac Banking Corporation, and ALS, primarily due to valuation concerns relative to position sizes. Some BHP shares were sold following call option exercises. Overall, share sales exceeded purchases, driven by opportunistic buybacks amid a persistent discount to net asset backing.

Net Asset Backing and Share Price Discount

AFIC’s net asset backing per share declined to $7.93 from $8.33, influenced by dividend payments and a portfolio value decrease, partially offset by accretive share buybacks totaling approximately $242.8 million. The company’s shares traded at an 11.1% discount to net asset backing, a level that remains elevated compared to historical norms.

The discount is attributed to factors including rising interest rates, market momentum, and dividend yield trends. AFIC has responded by enhancing communication with brokers and financial planners, providing weekly net asset backing disclosures, and continuing its on-market buy-back program to support share price stability.

Leadership Transition and Governance

Mark Freeman retired as CEO and Managing Director after more than 31 years with AFIC, including eight years as CEO. Alison Gibson, a seasoned investment professional with over 25 years’ experience and a former AFIC portfolio manager, was appointed as his successor effective 13 July 2026. The Board acknowledged Freeman’s leadership through significant industry changes and welcomed Gibson’s return, emphasizing continuity and a strong focus on long-term shareholder outcomes.

Sustainability and Climate Governance

AFIC disclosed comprehensive climate-related financial disclosures in line with Australian Accounting Standard AASB S2. The company integrates climate risk oversight into its governance framework, with the Board and Committees actively monitoring climate-related risks and opportunities. AFIC’s portfolio carbon intensity remains below the S&P/ASX 200 Index, reflecting its quality-focused investment philosophy.

While no material climate-related financial impacts were identified for the reporting period, AFIC continues to evaluate evolving regulatory requirements and stakeholder expectations, maintaining a prudent approach to portfolio resilience and sustainability governance.