While bear markets are not fun in the moment, I believe that they present long-term buying opportunities.
I have been buying Soul Pattinson shares recently for my own portfolio. If the share price were to drop any further then I believe it’d be an even better long-term idea.
At the current Soul Pattinson share price, I think the investment house represents good long-term value for the following reasons:
New Hope Corporation Limited (ASX: NHC)
New Hope is one of the larger positions in the investment conglomerate’s portfolio. This business is one of the largest coal miners in Australia.
Coal may not exactly be the most popular commodity due to environmental issues, but coal prices are near record levels, as New Hope points out. The ASX coal mining share noted the thermal coal price rise came after the Russian invasion of Ukraine, raising concerns around global energy security.
The broker Macquarie thinks New Hope is going to pay a grossed-up dividend yield of 31% in FY22 and 25% in FY23.
Soul Pattinson will be a significant beneficiary of this cash flow and this could help shore up any short-term profit weakness from some of its other portfolio investments.
Sell-off is creating opportunities to buy
Soul Pattinson already owns a portfolio of assets and investments across different industries including telecommunications, resources, building products, property, financial services, swimming schools, luxury retirement living, and more.
Hopefully, that diversified portfolio can do well over the long term.
However, the Soul Pattinson investment team has the freedom to adjust the portfolio and make new investments as opportunities are identified.
Over the long term, I think it’s times like this that can be useful for Soul Pattinson because it can take advantage of the lower asset prices.
Growing dividend yield
I think that one of the most attractive features about the business is its dividend.
There aren’t many ASX dividend shares that have increased the dividend every year for more than a decade.
Soul Pattinson has grown its dividend every year for shareholders for more than two decades, going back to 2000.
The company has been able to grow its dividend because its underlying investments have, as a group, been growing the dividends payable to Soul Pattinson. The investment conglomerate pays out most of its annual regular cash flow as a dividend but keeps some of it to re-invest into more opportunities.
However, as the Soul Pattinson share price falls, this also has the benefit of increasing the potential dividend yield for investors in new shares.
At the current valuation, Soul Pattinson has a grossed-up dividend yield of 4.1%.