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Is Soul Patts a safer ASX investment in this extreme market volatility?

It has been another brutal day on the ASX share market, with the S&P/ASX 200 Index (ASX: XJO) plunging by 9.7%.

Share prices have been tumbling in recent weeks across all market sectors as investors react to the growing seriousness of the global coronavirus pandemic and try to price in what impact this will have on the broader economy.

With this in mind, is Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) a safer option for investors during these turbulent times?

Highly diversified company

Over the last decade, Soul Patts has consistently led a conservative, value-focused strategy of investing across a diverse range of industries and businesses.

The company’s clever use of diversification incorporates investments across a broad spectrum of industries, ranging from pharmacies and telecommunications to mining and building products.

Soul Patts also keeps significant cash on its balance sheets, which places it in an ideal position to capitalise on any worthwhile investment opportunities if they suddenly arise. On the flip side, this cash can be used as a buffer in difficult operating times, placing the company in a better position than most if the market conditions in the months ahead prove to be very challenging.

Soul Patts funds its dividends from its net regular cashflow, which is expected to be similar to the prior year for FY 2020. This has placed the company in a position to increase its dividend for the interim and full-year result in FY20.

I think this is a large part of the reason why the Soul Patts share price has performed much better than most since the current ASX crash started gaining traction on February 20. During this time, Soul Patts shares have only lost 17% of value, including a near 3% decline today, while the S&P/ASX 200 Index (ASX: XJO) has now lost around 30%.

Recent profit guidance update

Soul Patts recently released an earnings guidance update to the market last week. 1H20 net profit after tax (NPAT) is likely to be in the range of $45 million to $55 million, while its regular NPAT which excludes the impact of non-regular items is likely to be in the range of $120 million to $130 million.

Soul Patts pointed out that its regular profit has been impacted during the current year by reduced earnings from all of its major investments including TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW) and New Hope Corporation Limited (ASX: NHC). However, this result appears to be still reasonably well received by the market.

Foolish takeaway

I think that Soul Patts’ strong diversification across a broad range of industries, combined with its strong cash position and skill in making the right investment decisions, positions it well to ride out the current market volatility better than most. In my view, these factors also position Soul Patts for strong growth over the medium to long term. In addition, Soul Patts shares currently trade on an attractive trailing dividend yield of 3.03%, fully franked.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. 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.