Why Soul Patts (ASX:SOL) could be the best ASX dividend share

Washington H. Soul Pattinson and Co. Ltd (ASX:SOL) could be the best ASX dividend shares for Aussies to think about for income.

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Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) may be one of the leading ASX dividend shares to consider for income.

What is Soul Patts?

Soul Patts describes itself as a significant investment house with a portfolio encompassing many industries including its traditional field of pharmaceuticals, as well as mining, building materials, property investment, telecommunications, financial services and other equity investments.

It listed over a century ago in 1903 as a pharmacy business and since then it has diversified into many other industries.

The company can boast of having long-term 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.

In terms of its investment style, the ASX dividend share says that it has a diversified portfolio of uncorrelated investments across listed equities, private equity and venture capital, property, corporate loans and cash. It tries to be counter cyclical and have a value focused approach.

WHSP says that it has a flexible mandate which allows the company to back companies at an early stage and grow with them over the long-term.

What are the types of companies that it owns?

Soul Patts has a number of listed investments in its portfolio. Its largest positions include: TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), New Hope Corporation Limited (ASX: NHC), Australian Pharmaceutical Industries Ltd (ASX: API), Milton Corporation Limited (ASX: MLT), Bki Investment Co Ltd (ASX: BKI), Clover Corporation Limited (ASX: CLV) and Tuas Ltd (ASX: TUA). It also owns shares of the listed Apex Healthcare which is listed in Malaysia.

The ASX dividend share also owns a small cap portfolio which was worth around $250 million at the end of July 2020, represented by 39 holdings. Soul Patts explains that this portfolio is full of fast growing companies that are outside the companies monitored by the large cap portfolio managers. In Soul Patts’ FY20 the portfolio outperformed the ASX Small Ords Accumulation Index by 12.9%.

Soul Patts also runs a private equity portfolio. It’s invested in things like agriculture and swimming schools (Aquatic Achievers). Other individual businesses that it’s invested in include Ampcontrol, coffee roasters Seven Miles, cleaning business Dimeo and Verdant Minerals.

Why could it be such a good ASX dividend share?

The company has the longest dividend growth streak on the ASX, it has increased its dividend every year since 2000 including through COVID-19.

Its diversified portfolio gives it a broad range of exposures and sources of investment income. Soul Patts receives cashflow in the form of dividends, distributions and interest which it can then pay on to shareholders as growing dividends. It retains some of the net cashflow each year to invest into more opportunities.

One of Soul Patts’ stated aims is steady and growing dividends. The other main aim is the growth in the capital value of the portfolio (measured by growth in the net asset values).

Soul Patts has said that cash generation from the portfolio remains strong to support dividends, whilst maintaining liquidity available for new investments. The ASX dividend share’s portfolio continues to diversify – it’s looking for more opportunities in the luxury independent living development space.

At the current Soul Patts share price it has a grossed-up dividend yield of 3%.

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Tristan Harrison has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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