The ASX dividend share Washington H. Soul Pattinson and Co Ltd (ASX: SOL) may be the leading pick for dividend income in the current environment.
When I think about investing for passive income, I make investment choices that I believe will continue to send cash my way, whether economic conditions are great or lean.
Soul Patts is a leading investment company that has been operating for 120 years.
In my view, the business would be a wise choice in this uncertain world of higher inflation, elevated interest rates and various potential outcomes regarding the incoming Trump presidency in the United States.
There are at least three reasons why I believe Soul Patts shares can succeed as a $2,000 investment and benefit dividend investors.
Long-term dividend record
Soul Patts is the clear winner in my eyes when it comes to the most consistent growth record on the ASX.
The company has grown its annual ordinary dividend every year since 2000. That's 24 years of consecutive dividend growth. Shareholders have seen their payouts rise during the GFC, the COVID-19 pandemic, and through the economic shocks of high inflation and rising interest rates.
There are not many businesses on the ASX with growth records going back further than the GFC. Pleasingly, Soul Patts is one of them.
Healthy dividend payout ratio
One of the most important factors in helping this ASX dividend share provide such a consistent dividend is its sustainable dividend payout ratio.
Each year, Soul Patts receives investment income from its portfolio of shares, private businesses, credit, cash and property. After paying for its expenditures, Soul Patts then sends a majority of that net cash flow to shareholders as a dividend.
In FY24, the company decided on a dividend payout ratio of 73.9% of its net cash flow from investments. This represented an annual dividend per share of 95 cents, 9.2% higher than the prior corresponding period. It also represents a grossed-up dividend yield of 3.9% (including franking credits).
Retaining just over a quarter of the cash flow means Soul Patts can reinvest into more opportunities to help grow its cash flow and dividends in future years. It also means there's headroom for Soul Patts to grow its dividend even if cash flow falls a modest amount in any particular year.
However, there was no decline in FY24. Soul Patts reported that its net cash flow from investments grew by 10% in FY24 to $468 million, rising slightly faster than the dividend growth.
Cash flow-focused assets
The business has a fairly defensively-minded portfolio, but it's designed so it can still deliver good total returns. In the company's FY24 report, it said:
We invest in all asset classes, industries and capital structures. We actively manage our portfolio mix to achieve our investment objectives to grow the portfolio, increase cash generation, and manage investment risk.
It also said its diversified investment portfolio helps mitigate risk and capture opportunities in different market cycles and that it focuses on investments with strong tailwinds.
Some of the main industries it's invested in include telecommunications, resources, building products, property, financial services, agriculture, swimming schools and electrification.
I think this portfolio and the dividend would suit investors well in the coming years.
