There are few shares that I think should be in every investor’s portfolio. I think that Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is one of those shares that could be a candidate for every portfolio.
More commonly known is ‘Soul Patts’, this business is an investment conglomerate that has been in operation for over a century. It takes large long-term investment stakes in other businesses. I strongly believe it’s this ability to change its holdings which has allowed Soul Patts to remain completely relevant all this time.
However, Soul Patts also isn’t afraid to take significant stakes in smaller businesses that it believes could turn into winners like National Veterinary Care Ltd (ASX: NVL) and Alliance Aviation Services Ltd (ASX: AQZ).
Businesses can be led astray when management’s incentives do not align with shareholder interests.
Soul Patts’ management are very much aligned with shareholders as they themselves are major shareholders.
According to Soul Patts, 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.
The long-standing management team have produced long-term results. Isn’t it amazing how truly investing for the long-term creates good long-term returns?
Over the past decade the Soul Patts total shareholder return, assuming re-investing dividends, was an average of 10.5% per annum compared to the All Ordinaries Accumulation Index average return of 5.1% per annum.
It gets better. Over the past two decades the average return per annum for Soul Patts was 14.1% compared to the accumulation index’s return of 8.5% per annum.
Soul Patts has been one of the most solid picks for dividend growth on the ASX over the past 15 years. Indeed, it has grown its annual ordinary dividend every year since 2000. Only Ramsay Health Care Limited (ASX: RHC) can match that record.
The dividend is likely to keep growing as Soul Patts only paid out 74.69% of its regular operating cash flows for the January 2018 half-year result. This leaves plenty of wriggle room for the dividend plus money to re-invest to grow the profit.
Soul Patts is currently trading with a grossed-up dividend yield of 3.8%. It’s a great business, but there could arguably be a point over the next year or two where TPG’s profitability is hurt by the NBN, Brickworks is hurt by a house market decline and the coal investment suffers from lower coal prices.
Soul Patts is a wonderful business, but it’s not a buy at any price. The share price is too high for my liking, I’d much rather buy at around $16.50 or lower.
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Motley Fool contributor Tristan Harrison owns shares of NATVETCARE FPO and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended TPG Telecom Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of NATVETCARE FPO. The Motley Fool Australia has recommended Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.