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Is the Soul Patts (ASX:SOL) share price a buy?

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As regular readers would know, one of my highest-conviction long-term ASX share ideas is Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). It reported this week, is the Soul Patts share price a buy?

FY20 report

The Soul Patts report was covered here. WHSP was listed in 1903 and it has been going strong ever since. 

There were a number of interesting pieces in the report.

Regular profit after tax was down 44.7% because of lower coal prices and demand for New Hope Corporation Limited (ASX: NHC) as well as COVID-19 impacts on construction with Brickworks Limited (ASX: BKW).

Statutory profit after tax increased by 284.3% to $953 million largely due to the accounting profit from merger involving TPG Telecom Ltd (ASX: TPG).

The net cash flows from investments increased by 48.8% to $252.3 million thanks to the special dividend declared by TPG.

Soul Patts’ net asset value (pre-tax) decreased by 5.3% to $5.2 billion. The net asset value decline of 5.3% was 6.9% better than the S&P/ASX All Ordinaries Index (ASX: XAO) decline of 12.2% over the year to 31 July 2020.

The Soul Patts directors decided to declare a final dividend of 35 cents per share, which was an increase of 2.9% compared to last year’s final dividend. That brought the total dividend for FY20 up to 60 cents per share – an increase of 3.4%.

Its equities portfolios did very well during the year.

The small cap portfolio delivered a 4.4% return, beating the ASX Small Ords Accumulation Index by 12.9%. This portfolio aims to identify fast growing companies that are outside the companies monitored by the large cap portfolio monitors. These ideas could become larger positions in the overall Soul Patts portfolio.

The large cap portfolio – managed by Contact Asset Management – delivered a total return of -7.8%, beating the 9.7% return of the S&P/ASX 300 Accumulation Index over the year. This portfolio aims to preserve long-term capital and deliver an attractive income stream of a grossed-up yield of 6%.

Total returns

The most important reason for any investor to like any ASX share is the total return. The total return is the share price growth plus the dividends. The Soul Patts share price has done very well over the long-term. 

Over the past five years its average total shareholder returns (TSR) per annum has been 10.6%, outperforming the All Ordinaries Accumulation Index by 5.1% per annum. Over the past two decades its average TSR per annum has been 12.7%, outperforming the All Ordinaries by 5.2% per annum.

It has done this whilst improving its diversification. During FY20 one of its main new investments was a $127.7 million investment into agriculture, managed by Argyle Capital Partners. It also increased its stake in Ironbark Asset Management and it participated in the Palla Pharma Ltd (ASX: PAL) capital raising.

The outperformance and increasing diversification is an attractive proposition.

Reliability for dividend investors

I think that Soul Patts could be one of the best ASX dividend shares on the ASX, if not the best. It has actually increased its dividend every year for the past 20 years in a row.

At the current Soul Patts share price it has a grossed-up dividend yield of 3.6%. The yield has lowered recently as the Soul Patts share price has risen strongly in September.

As I mentioned, the total dividend for FY20 was increased by 3.4% to 60 cents per share.

If you’re looking to buy Soul Patts shares then I imagine the dividend is part of the focus. Soul Patts is a great dividend idea with its diversified and growing assets in my opinion.

Is the Soul Patts share price a buy?

Since the end of August 2020 the Soul Patts share price has gone up by 13%. It has now risen beyond the pre-COVID-19 crash price. So it’s not as cheap as a buy as it was before over the past few months.

For the long-term I think Soul Patts could be a very good buy for steady returns and growing dividends.

Soul Patts’ returns will largely be decided by the performance of its underlying assets. I think some of its businesses like TPG, Brickworks and Clover Corporation Limited (ASX: CLV) are on track to deliver good returns over the next few years. The future investments will help grow its asset value, with the potential for something like regional data centres as an investment idea in FY21.

I’m not jumping to buy Soul Patts shares today, as it’s already one of my biggest positions. However, I like the business a lot so I’d be happy to buy a parcel today and buy more on price weakness.

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Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. 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.

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