Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is my top dividend idea, it has been for a while.
I’ve regularly said that Soul Patts could be the most likely business to keep growing its dividend during a period like this.
Soul Patts recently gave an update to the market.
“Steady and growing dividends”
Soul Patts reminded investors that it declares its dividends from the cash it receives from its portfolio (rather than its accounting earnings). The regular cash received by Soul Patts from its investments during FY20 is expected to be in line with the previous year and will support the ability to pay a growing interim and final dividend.
Great news! It means the dividend can grow over the next 12 months during this outbreak. Hopefully during FY21 too, but that will partly depend whether this turns into another GFC or not, which – fingers crossed – this isn’t at this stage.
Soul Patts gave profit guidance for its FY20 half-year result. It said that half-year net profit after tax attributable to shareholders will be in the range of $45 million to $55 million. The regular net profit after tax attributable to shareholders, excluding the impact of non-regular items, is likely to be in the range of $120 million to $130 million.
The profit has been affected by reduced earnings from several of its main investments including TPG Telcom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW), New Hope Corporation Limited (ASX: NHC) and Round Oak Minerals.
Soul Patts also reminded investors: “WHSP does not consider its earnings to be the key indicator of the Company’s performance. As with any investment, the key drivers of success are growth in the capital value of the portfolio and a growing yield.”
Is it good value today?
Whilst Soul Patts didn’t say what its value was at the time of the announcement, it did say that its gross value of the portfolio at 31 January 2020 was in line with the FY19 year end. The Company’s share price at 31 January was trading at a 5.8% discount to the gross value of the assets in the portfolio.
I wouldn’t be surprised if it was still at a 5% or more discount to it assets, but it’s hard to tell with all this volatility.
Assuming Soul Patts grows its interim and final dividends by 1 cent per share, it currently has a 5.1% grossed-up dividend yield. That looks great in this era of low interest rates. I’d be extremely happy to buy today for the long-term.
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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. 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.