Dividends pressure as AFIC warns on industrial profits

AFIC (Australian Foundation Investment Company) warned of a tough reporting season, saying the balance of risks is tilted toward declining profits for major industrials. That weakness is likely to put dividends under pressure for some companies outside the resource sector.

AFIC said signs of a slowing economy and waning consumer confidence have led analysts to downgrade earnings forecasts for many industrial companies, making it harder for them to sustain or grow dividend payouts in the near term.

AFIC reported a 27% increase in net profit to $233.2 million for the year to June 30, and overall revenue growth was also up 27% to $249 million.

The main driver was a roughly 30% lift in dividends from the stocks AFIC holds, largely due to a rebound in bank stocks held in its portfolio.

AFIC’s managing director Ross Barker said the firm is hopeful for more dividends from resource-related stocks because conditions there remain robust, while many industrial companies are finding conditions challenging.

AFIC prides itself on a deeply conservative investment strategy. Its $4.9 billion portfolio is concentrated in Australian blue-chip stocks with a heavy emphasis on banks and big miners, including nearly $600 million invested in BHP Billiton.

AFIC shares closed about 8% lower at $4.46, trading at a discount to its reported net tangible asset backing of $4.79 a share.

Investors should watch company profit reports—especially for industrial companies outside the resources sector—dividend announcements, and any signs of downgraded earnings forecasts tied to slowing consumer demand, since these factors influenced AFIC’s cautious outlook.