I used the recent market sell-off to invest again in the S&P/ASX 200 Index (ASX: XJO) stock Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). I wish I had millions of dollars to invest, but this time it was just a $1,000 investment – every buy helps in the long run.
It was already a major position in my portfolio and I want to own a lot more shares as time goes on, so I'm very happy to buy when it makes sense.
Cheaper valuation
As we can see on the chart below, the Soul Patts share price has dipped over the last few weeks, which is great for me because I was able to buy more at a pleasingly cheaper valuation.
The lower the share price we buy at, the bigger the margin of safety it gives and it means capital gains are more likely.
Another advantage of buying at a lower price is that it boosts the prospective dividend yield. For example, if a business with a 4% dividend yield falls 10%, then the dividend yield becomes 4.4%.
So, a lower Soul Patts share price can mean better capital gains and stronger dividends.
Strong portfolio
There is a lot of uncertainty surrounding inflation and where interest rates are going in the medium term.
With interest rate cuts still seemingly a long way off, it's possible that some of the stocks that have rallied the hardest in the last six months may face a bit of a re-rating to that new reality. Some investors were hoping for rate cuts in the first half of the year.
Soul Patts' portfolio is designed to be defensive and provide resilient cash flow to the company. The ASX 200 stock is invested in a number of sectors that are not highly aligned to the volatility of markets and the economy, such as telecommunications, resources, agriculture, swimming schools, industrial property and a few other areas.
I think it's well-suited to ride through whatever happens next in the year or two.
Long-term
Ideally, I'd like to own the ASX 200 stocks I invested in forever. That means I'd never have to trigger a capital gains tax event, which means I can avoid paying tax unnecessarily. But, it only makes sense to own something for the long term if it's a good choice.
Soul Patts has shown over the long term that it can adjust its portfolio to be focused on the right areas. The fact it can change its investment portfolio, with the flexibility to invest in almost anything, is a great characteristic. That's one of the main reasons why it's one of my favourite ASX 200 stocks.
