This ASX 200 dividend share is my biggest stock market investment. Here’s why

I am invested in a number of ASX dividend shares in my portfolio. The biggest S&P/ASX 200 Index (ASX: XJO) share investment in my portfolio is Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares.

The business is one of the oldest on the ASX. In fact, it has been listed on the ASX since 1903. It’s also one of the names that I’ve been invested in for the longest, due to several reasons.

Strong diversification

Soul Pattinson may be the most diversified share in the ASX 200.

It describes itself as an investment house with investments in a diverse portfolio of assets across a range of industries.

The company started off as a pharmacy business but has since invested in a wide array of companies.

It has held strategic positions in companies like Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG), and New Hope Corporation Limited (ASX: NHC) for decades. These are three of its biggest positions. In percentage terms, it owns 12.6% of TPG, 43.3% of Brickworks, and 39.9% of New Hope.

Other strategic investments include Asian telco Tuas Ltd (ASX: TUA), fund manager Pengana Capital Group Ltd (ASX: PCG), Asian-listed healthcare business Apex Healthcare, and resource business Aeris Resources Ltd (ASX: AIS).

It then has a number of other portfolios.

It has a large cap portfolio with names like Macquarie Group Ltd (ASX: MQG), CSL Limited (ASX: CSL), Wesfarmers Ltd (ASX: WES), Transurban Group (ASX: TCL), Commonwealth Bank of Australia (ASX: CBA), and BHP Group Ltd (ASX: BHP).

Next, the ASX 200 dividend share has a private equity portfolio, worth $654 million at the end of FY22. Investments include electrical business Ampcontrol, financial services business Ironbark, swimming school business Aquatic Achievers, and an agricultural portfolio. It recently invested more money into agriculture as it looks to build its farming aggregations.

It also has an ‘emerging companies’ portfolio. Investments here include names like Clover Corporation Limited (ASX: CLV), Lindsay Australia Ltd (ASX: LAU), and Paladin Energy Ltd (ASX: PDN).

On top of that, the company has a structured yield portfolio. It’s investing in financial instruments across the capital structure for “improved risk adjusted returns on attractive opportunities”. This portfolio currently has a yield of more than 10%, according to the company’s AGM update.

Soul Patts currently has a small property portfolio as well, although it has a large indirect interest in property via Brickworks’ industrial portfolio.

Not only are Soul Pattinson shares highly diversified, but the company has the ability (and ambition) to keep investing in new businesses and expanding its existing divisions. Indeed, its ability to shift the portfolio can mean it’s always future-focused.

I think its relatively defensive-focused portfolio is why the Soul Pattinson share price has held up so well in 2022.

Dividends

One of the most attractive things to me about this ASX 200 dividend share is its commitment to paying growing dividends to shareholders. Although, of course, dividends aren’t guaranteed.

The investment company has grown its dividend every year since 2000. It has also paid a dividend every year since it listed in 1903. Certainly, I think it has an impressive dividend track record.

Soul Pattinson’s cash flow comes from the dividends, distribution, and interest of its investment portfolio.

Each year, after paying for its operating expenses, Soul Pattinson then sends a majority of its cash flow to shareholders and then re-invests the rest for more opportunities.

In FY22, the ASX 200 dividend share had an ordinary dividend payout ratio of its net cash flow from investments of 74.7%. It also paid a special dividend because of the elevated dividend income coming from New Hope due to a buoyant coal market.

Long-term capital growth

No one knows what share prices are going to do in the short term.

But I think Soul Pattinson’s method of long-term investing in businesses with compelling growth plans continues to pay off. The fact that it also adds to its investment portfolio from its cash flow every year makes it almost inevitable that the portfolio grows.

For example, it recently invested another $73 million in agriculture and $181 million into its structured yield portfolio in the first quarter of FY23.

In the five years to 31 July 2022, Soul Pattinson shares had delivered total shareholder returns of an average of 10.5% per annum. This was 2.1% per annum better than the All Ordinaries Accumulation Index (ASX: XAOA). Though past outperformance is not a guarantee of future performance.

Foolish takeaway

I think Soul Pattinson shares have the potential to keep paying good dividends and delivering attractive long-term capital growth while having the diversification to reduce risks and volatility.

I’m looking to steadily buy more of the ASX 200 dividend share in the coming years.

The post This ASX 200 dividend share is my biggest stock market investment. Here’s why appeared first on The Motley Fool Australia.

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More reading

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Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson And. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, CSL, Clover, Lindsay Australia, and Washington H. Soul Pattinson And. The Motley Fool Australia has positions in and has recommended Brickworks, Washington H. Soul Pattinson And, and Wesfarmers. The Motley Fool Australia has recommended Lindsay Australia, Macquarie Group, and Tpg Telecom. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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