Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), or Soul Patts, shares have been a compelling investment pick for a long time. Brickworks Limited (ASX: BKW) shares also have several positives. Which one is better? I'm sharing my answer to that question.
Let me say upfront, I'm a shareholder in both of these companies and I'd be happy to buy both of them today.
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What do these businesses do?
I'll start with Brickworks – it is the largest brickmaker in Australia and it produces a number of other building products including paving, masonry, roofing, cement and specialised building systems. The company is a major brickmaker in the US as well after making some acquisitions a few years ago.
The company has a large property exposure through its 50% holding in a joint venture industrial property trust with partner Goodman Group (ASX: GMG). Brickworks regularly sells excess land into this property trust (unlocking the value for Brickworks) and then high-quality warehouses are built on that land. Brickworks recently set up a manufacturing property trust (with partner Goodman), which owns some of the properties where Brickworks' manufacturing businesses operate, paying rent.
Finally, Brickworks has an investments segment, with the main asset being its 26% holding of Soul Patts. Soul Patts owns 43.1% of Brickworks. This cross-holding has existed for decades, providing stability and supportive ownership for each other over this time period.
Soul Patts listed onto the stock exchange in 1903 as a pharmacy business. Since then it has become a business that operates as an investment house.
It's invested across a variety of sectors including telecommunications, resources, financial services, agriculture, swimming schools, credit and many more. Aside from Brickworks, some of Soul Patts' biggest listed investments include TPG Telecom Ltd (ASX: TPG), New Hope Corporation Ltd (ASX: NHC), Tuas Ltd (ASX: TUA), Apex Healthcare, BHP Group Ltd (ASX: BHP) and Macquarie Group Ltd (ASX: MQG).
Are Brickworks or Soul Patts shares a better buy?
The Motley Fool's Scott Phillips has given his wise thoughts on that question:
There's no harm in owning both. More importantly, if you took the Soul Patts business out of Brickworks, what would you have left? A great brick and tile and property business. Diversification internally and between those two investments is what you get from doing both.
I agree, both businesses are compelling picks for the long term. Both also have a record of paying a reliable dividend over the last two decades, though that's not guaranteed to continue in the future.
If I had $5,000 to invest, I'd choose to allocate more to Soul Patts shares because of a few key reasons.
What I like most about each ASX share
Brickworks' industrial property trust stake is a valuable asset. That investment is producing development profits (when warehouses are completed) and it's creating rental profits which are helping fund higher dividends. I will say that Brickworks shares regularly trade at a more attractive price to its underlying net asset value (NAV) compared to Soul Patts.
Soul Patts has an impressive track record of making good, defensive investments which perform adequately over the long-term and generate solid cash flow. As of 31 July 2023, the company had generated average total shareholder returns per annum of 11.3% over the prior five and 15 years, outperforming the All Ordinaries Accumulation Index (ASX: XAOA) by an average of at least 3.6% per annum over those time periods. Of course, past (out)performance is not a guarantee for the short-term or long-term.
My biggest reason for supporting Soul Patts over Brickworks is the investment flexibility. The investment house can invest in any sector it likes – ASX blue chips, ASX small-cap shares, private equity, credit, property and more. It can look for the best opportunities in any area and ensure its portfolio is future-proofed.
Soul Patts is one of the biggest positions in my portfolio. I'm expecting to keep investing in it in the coming years and hold it for decades, potentially forever.
