Why I'd back up the truck on Soul Patts shares right now

I think this is one of the most compelling ASX 200 stocks.

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Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares are a very attractive proposition, in my opinion. In fact, I'd go so far as to say the S&P/ASX 200 Index (ASX: XJO) stock is one of the most appealing investments available in the index.

The investment company has certainly demonstrated excellent longevity, having been listed on the ASX for more than 120 years. Despite being one of the oldest businesses on the ASX, I think it has a very bright future.

Soul Patts already holds one of the largest positions in my portfolio, and I'd be very happy to buy more shares in the company at its current valuation. Let's take a look.

Lower Soul Patts share price valuation

The Soul Patts share price has dropped around 10% since March 2024, as shown in the chart below.

When a company's valuation falls, we can invest at a more appealing price/earnings (P/E) ratio. With a diversified business like Soul Patts, which has demonstrated a long-term track record of growing its net asset value (NAV) per share, I think buying during a dip like this is very appealing.

It's not as cheap as it was when it fell below $25 two years ago. Still, with how the Soul Patts portfolio is positioned, I don't expect it to fall substantially from here unless the overall ASX share market experiences a large drop.

Defensively positioned

The investment team at Soul Patts has deliberately designed its portfolio to protect against downside risk.

The company wants to protect shareholder capital while also growing the portfolio by investing with an unconstrained mandate – it can invest in any sector it wants. It tries to find the most attractive opportunities while balancing risk and return.

With so much uncertainty about the economy and inflation, now could be a good time to invest in a defensive business.

Soul Patts focuses on increasing its cash flow generation by selectively deploying its capital in various investments.

The business has recently focused its new investments on private equity and credit/bonds in the last 12 months. It has expanded its agriculture portfolio, including the acquisition of a large automated fruit processing and storage facility that aims to deliver better control over processing efficiency and channel sales, both domestic and export.

Soul Patts is also invested in various industries like telecommunications, resources, property, building products and swimming schools.

Improved dividend yield

The lower Soul Patts share price has pushed up the prospective dividend yield. It has grown its dividend every year since 2000, which is the best record on the ASX.

Using the last two declared dividends, Soul Patts has a grossed-up dividend yield of around 4%.

It doesn't offer the biggest yield on the ASX, but I like the stability and regular passive income growth the ASX 200 stock has been able to achieve this century.

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