NAB’s dividend yield remained around 8 per cent, despite all the headwinds facing the broader sector, and Mr Walling said shareholder returns were sustainable.

“There is some possibility that the dividend is reduced slightly from here, but we feel that will largely remain. We come back to the fact that NAB does have some quality assets,” he said, pointing to its strong market position in small-business lending.

AFIC chief executive Mark Freeman said while the weighting of the banking sector in the firm’s overall portfolio had fallen from over 31 per cent to 21 per cent in recent years, the banks remain good income stocks.

“I think it will be tough for quite a number of years to get growth, but we’re still hopeful they can maintain the dividend yield.”

Mr Walling said while the royal commission would inevitably push up risk and compliance costs for the banking sector, the sheer quality of the big four’s assets meant their power in the market could actually be enhanced over time.

“Over time we do feel – and there’s a good history of this – that each time regulation increases, the major four banks often emerge in a stronger position, with their pricing power and quality assets intact.”

In the NAB trade, AFIC has boosted the income it receives by using call options. Mr Freeman said the option yield and the dividend yield combined was providing a total yield of above 10 per cent.

Beyond the banking sector, Mr Freeman said AFIC was pleased with its investments in mining giants BHP and Rio Tinto, and confident the pair’s focus on capital discipline would see any windfall from higher iron ore prices quickly flow back to shareholders.

The LIC also remains upbeat on the outlook for Wesfarmers, arguing the company’ structure has become much less complex following the demerger of Coles last year.

Portfolio manager David Grace said capital returns of as much as $2 a share were possible if the conglomerate was unable to find an acquisition to put its money into.

But he was less upbeat about the prospects for Coles. He said Wesfarmers had underinvested in the supermarket giant before the demerger, and a big capital expenditure catch-up period loomed.

AFIC boss Mark Freeman: “I think it will be tough for quite a number of years to get growth.” Wayne Taylor

On top of that, increased competition and a yet-to-be announced strategy refresh from chief executive Steven Cain has AFIC cautious.

“We think Coles is an expensive stock and we wait to see the future from the new management team,” Mr Grace said.

AFIC has added to its holdings in CSL, Transurban, Woodside and Macquarie Group in the past 12 months, and has two new names in its list of the 20 largest holdings: Sydney Airport and New Zealand-based transport group Mainfreight.

The shareholder meeting also saw extensive discussion of the Labor plan to end franking credit refunds, with AFIC revealing a survey of 14,362 investors showed 85 per cent of respondents feel the plan will hurt them.

Mr Freeman said the response was overwhelming, and Labor was underestimating the damage the policy would do to many retirees who live what he described as a modest lifestyle.

“I don’t think there’s a real depth understanding of what it means to be a retiree and what it means to rely on those franking credits,” he said.

“We are looking at further strategies to educate around this issue to make sure the impacts are well and truly understood by individuals.”

AFIC, which paid a special divided earlier this year to distribute excess franking credits before a potential change of government, plans to ramp-up its campaign against the changes on behalf of its investors in the coming months.

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