An ASX dividend giant I'd buy over Westpac shares right now

I'd rather buy this stock for its long-term track record of dividend growth.

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The ASX dividend giant Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) appeals to me much more than Westpac Banking Corp (ASX: WBC) shares.

Both businesses are more than 120 years old and have provided investors with long-term dividend streams. Soul Patts has paid a dividend annually since it was listed in 1903.

Westpac is one of the largest ASX bank shares, while Soul Patts is a diversified investment conglomerate.

There are three key reasons why I've chosen the investment business for my portfolio over Westpac shares.

Dividend growth

Westpac currently has a higher dividend yield, with a trailing grossed-up yield of 6.6%, compared to the Soul Patts grossed-up dividend yield of 4%.

However, in the long term, Soul Patts has been much more successful at growing its dividend.

The last two dividends (91 cents per share) from Soul Patts are almost double what was paid in 2013 (46 cents per share).

Westpac's last two dividends ($1.62 per share) are 16.5% lower than what the ASX bank share paid in 2013 ($1.94 per share).

I believe Soul Patts' asset base gives it more scope to deliver growth over time.  

Earnings diversification

Westpac largely makes its profit by lending to households and businesses in Australia and New Zealand, which doesn't offer much earnings diversification. So, Westpac shares are very reliant on the bank's loan book.

Soul Patts is invested in numerous industries and ASX shares, it has the flexibility to invest wherever it sees opportunities. Some of its biggest industry exposures include resources, telecommunications, building products, property, financial services, agriculture, electronics, and electrical parts. These investments generate profit and pay dividends for Soul Patts.

Some of the biggest positions in its ASX portfolio include TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), New Hope Corporation Ltd (ASX: NHC), Tuas Ltd (ASX: TUA) and Macquarie Group Ltd (ASX: MQG).

Over time, Soul Patts' portfolio can continue to grow and generate further cash flow to fund bigger dividends.

Dividend stability

If I invest in a stock for passive income, I'd like to know that the dividend will likely keep flowing even in a recession. That's likely when I would need the cash flow the most!

Ignoring the one-off year of 2020, which was heavily impacted by the pandemic, Westpac saw its 2021 annual dividend decrease by approximately a third compared to the 2019 annual dividend. The 2023 dividend was 18% lower than 2019.

Meanwhile, Soul Patts has grown its annual ordinary dividend every year since 2000 – it kept rising during the COVID-19 years.

Soul Patts' dividend isn't guaranteed to keep growing, but it's invested in a portfolio of primarily defensive assets, which offers security. The investment house usually retains some of its annual cash flow each year to invest in more opportunities to help grow its dividend in future years.

Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Macquarie Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks, Macquarie Group, 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 Scott Phillips.

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