There are some compelling reasons why Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), also called Soul Patts, could be considered a great ASX dividend share.
A quick overview of Soul Patts
Soul Patts is an investment conglomerate that has been listed since 1903.
The company has many long-serving employees. More than 40 employees have worked for the company for over 50 years. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families. Soul Patts itself takes a long-term investment approach into businesses.
The management team like to take a contrarian approach when taking positions into some sectors. For example, it recently invested into agriculture during the course of one of Australia’s worst droughts.
It is currently invested across numerous industries such as telecommunications, building products, resources, pharmacies, listed investment companies (LICs) and financial services.
Here are some of the reasons why Soul Patts could be considered a great ASX dividend share:
Diversification
Soul Patts’ investments essentially provide shareholders with a diversified portfolio, somewhat like an exchange-traded fund (ETF).
Being invested across many businesses is usually seen as a safer idea than one particular company.
Some of the ASX shares that Soul Patts currently owns in its portfolio are: TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Australian Pharmaceutical Industries Ltd (ASX: API), New Hope Corporation Limited (ASX: NHC), Milton Corporation Limited (ASX: MLT), Bki Investment Co Ltd (ASX: BKI), Palla Pharma Ltd (ASX: PAL), Clover Corporation Limited (ASX: CLV) and Pengana Capital Group Ltd (ASX: PCG).
It also owns unlisted businesses. Soul Patts has agriculture investments, as I’ve already mentioned. It also has investments in private businesses including cleaning, resources, swimming schools, financial services and a business called Ampcontrol.
Dividend funding
Soul Patts funds its dividend to shareholders from the cash flow from its investments in the form of dividends, distributions and interest. The company takes its total investment income, pays for the operating expenses, tax and so on – what’s left is called its regular operating cashflow.
TPG, Brickworks and New Hope normally make up a large proportion of the funding because those three stakes make up a significant part of Soul Patts’ asset value.
In FY20 Soul Patts paid out 56.93% of its regular operating cash flow as a dividend. This doesn’t include $28.53 million of a TPG dividend which was escrowed for FY21 because the old TPG would have paid that dividend in November.
Dividend growth streak record
Soul Patts has the longest consecutive dividend growth streak on the ASX. It has grown its dividend every year since 2000. Ramsay Health Care Limited (ASX: RHC) also had a streak going back that far, but the COVID-19 pandemic impacts ended that run.
There are businesses overseas with much longer dividend runs, but on the ASX it’s the longest streak. And it comes with franking credits attached as well which overseas shares do not. Franking credits boosts the prospective yield for Aussie investors.
What’s the Soul Patts dividend yield now?
At the current pre-open Soul Patts share price of around $29, it has a trailing grossed-up dividend yield of 3%. The prospective yield has been declining as the share price has risen over the year. However, the grossed-up yield is still materially higher than the official Reserve Bank of Australia (RBA) interest rate.
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