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Does the AFIC (ASX:AFI) dividend beat the ASX 200?

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When the Australian Foundation Investment Co Ltd (ASX: AFI), or AFIC for short, first opened its doors back in the late 1920s, it had a very potent advantage. If an investor wanted a broad-based, diversified investment in ASX shares, all under a single ticker code, then AFIC was one of the only options available to investors. 

Perhaps unfortunately for this Listed Investment Company (LIC), that is no longer the case in today’s modern investing world. With the rise of the exchange-traded fund (ETF), there are many investors today, inspired by the teachings of great investors like Warren Buffett and the late Jack Bogle, who simply look to index funds to fulfil this role. Why try and compete with the market, when you can just invest in the market, goes the logic. And perhaps fair enough too. If you’ve tried your hand at investing in individual shares yourself, you probably know how difficult it is to beat the market over a long time frame.

But that doesn’t mean AFIC is irrelevant now. After all, on its latest performance data, this LIC has managed to slightly outperform the S&P/ASX 200 Index (ASX: XJO) over the past 5 years. It has returned an average of 10.6% per annum over this period, against the ASX 200’s flat 10%. 

But what of dividends? There might be many investors who choose AFIC as an investment over an ETF because of its history of delivering strong, fully franked dividend income. 

So let’s see how AFIC compares to the ASX 200 in this regard. 

So AFIC’s last two dividend payments were an interim dividend of 10 cents per share that investors saw last month. And a final dividend of 14 cents per share that was paid out last August. Both dividends were fully franked. Those two dividends give AFIC shares a trailing yield of 2.94% on current pricing. 

Let’s compare that to an ASX 200 ETF like the iShares Core S&P/ASX 200 ETF (ASX: IOZ). IOZ pays out quarterly dividend distributions. Its last four payments total roughly $1.08 in distributions per share. On today’s unit price, that gives this ETF a trailing yield of 3.63%. However, not all shares in the ASX 200 pay fully franked dividends, so this yield only comes partially franked. But even so, it clearly outstrips AFIC.

But a caveat. AFIC is a LIC. That means it can hoard its dividend payments in order to smooth them out over time. In contrast, most ETFs are trust structures, which means they are compelled to pass on any dividend income to their shareholders almost immediately.

That might explain why AFIC was able to keep its dividends at 2018 levels over 2020 and 2021 – both years where many ASX shares were forced to slash their dividends compared to prior years’ levels. On the other hand, we saw IOZ’s distributions fluctuate wildly over the past few years. So AFIC might appeal to some income investors out there for this reason.

But that’s how AFIC as a LIC compares to an ASX 200 ETF in terms of dividend income. 

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