I like all of the ASX shares in my portfolio for different reasons. I think some offer good growth potential, others are defensive, and many of my positions are attractive for dividends.
But my all-time favourite is Soul Pattinson and Co. Ltd (ASX: SOL).
For readers that haven't heard of the company before – it's not exactly a household name – Soul Pattinson is an investment house that has been listed since 1903. It started as a pharmacy business but has since diversified into a major company with a market capitalisation of $10 billion.
Soul Patts is my favourite for many reasons. But I'll pick out the top three that explain why I like it the best.
1. Suited for tough times — and good times too
Soul Pattinson has designed its portfolio to gain exposure to various asset classes across sectors, including private equity, private credit and property.
It's invested in many ASX shares like TPG Telecom Ltd (ASX: TPG), Tuas Ltd (ASX: TUA), New Hope Corporation Limited (ASX: NHC), Brickworks Limited (ASX: BKW), Pengana Capital Group Ltd (ASX: PCG), Aeris Resources Ltd (ASX: AIS), Wesfarmers Ltd (ASX: WES), BHP Group Ltd (ASX: BHP) and Macquarie Group Ltd (ASX: MQG), to name a few.
Private holdings include agriculture, electrical parts business Ampcontrol and a swimming school business called Aquatic achievers.
Soul Pattinson says that it's increasing diversification of uncorrelated assets and has "resilience" from profitable low-cost operations with "robust, defensible" business models.
I think we can see the pleasing long-term performance of the company from its total shareholder returns. At 31 July 2022 – the end of its FY22 – the investment house had produced average total shareholder returns of 10.5% per annum over the prior five years (assuming reinvestment of dividends).
That compares to the 8.4% average return per annum over the same time period for the All Ordinaries Accumulation Index (ASX: XAOA). Soul Pattinson's shareholder returns produced an outperformance of an average of 2.1% per annum.
2. Always updating the portfolio
Another reason why Soul Pattinson shares are at the top of my list is that the company can always change its portfolio of investments.
It isn't stuck being a bank, supermarket, miner or any other industry. Not that there's anything wrong with those sectors. Soul Pattinson's investment portfolio is diversified, but management can sell an investment if they think it would get a great price or if it no longer has a compelling future.
The ASX share is always on the hunt for new investments that can help it grow.
This regular renewal of the portfolio means that it should be future-focused and able to future-proof itself.
I don't think I'll ever need to sell my Soul Pattinson shares. This means that I benefit from compounding and don't need to activate any capital gains tax (events).
3. Growing dividend
The third positive I'll point out is the company's consistently-growing dividend.
One of Soul Pattinson's main aims is to grow its dividend, and it has done this for shareholders every year since 2000. I think that's a great record – the longest on the ASX.
Dividends are certainly not guaranteed.
But, the ASX share receives cash flow from its investments in the form of dividends. It then pays out most of the net cash flow as a dividend after paying for its expenses.
But, it retains some of that net cash flow to re-invest in more opportunities. These can help grow its portfolio value and net cash flow and help fund future dividends from Soul Pattinson shares.
