The ASX dividend stock Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is one of my favourites when it comes to reliable passive income.
When I consider which businesses could be a great option for delivering both long-term capital growth and steady dividend growth, Soul Patts is at the very top of my list.
Although the company isn't as famous as Commonwealth Bank of Australia (ASX: CBA) or Telstra Group Ltd (ASX: TLS), I think it is more compelling than both of them.
While I wouldn't suggest someone allocate their entire portfolio to one business, there are a few factors that could justify putting $20,000 (or more) into this ASX dividend stock. Let's explore those.
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Diversification and longevity
The business has been listed for over 120 years; it's one of the oldest companies on the ASX. It has survived various 'black swan events', such as two world wars, various economic recessions, two global pandemics, various politicians, and so on.
It started as a pharmacy business, and over the decades, it has invested in various other sectors and businesses.
The Soul Patts portfolio is designed to be defensive and continues generating cash flow even when the economy isn't booming. It's invested in areas like telecommunications, resources, swimming schools, agriculture, financial services, property, bonds/credit, and more.
Soul Patts has investment flexibility, allowing it to invest virtually anywhere. That helps with portfolio diversification and identifying the best additional opportunities for the portfolio.
Dividend yield and stability
The portfolio is full of stable businesses and other assets, which send stable dividend payments to Soul Patts every year. This allows Soul Patts to pay its expenses and pay a majority of the money to shareholders as a growing dividend each year.
The ASX dividend stock has grown its annual ordinary dividend every year for investors since 2000, the longest growth streak on the ASX. This fantastic record isn't guaranteed to continue, but it shows that the company is very motivated to continue rewarding shareholders with larger payouts.
In FY24, the business paid an annual dividend per share of 95 cents, which translates into a grossed-up dividend yield of around 4%, including franking credits. This annual payout was 73.9% of its net cash flow from investments, meaning around a quarter of its cash flow was retained to invest in further opportunities.
Good total returns for an ASX dividend stock
I've talked about how I'd want a good passive income share to provide both dividends and capital growth – that's the power of Australian businesses listed on the share market.
When the company released its FY24 annual result, it revealed how its total shareholder returns – capital growth plus dividends (but excluding franking credits) – had been an average of 12% over the prior decade and 11.7% per annum over the prior two decades.
While that's not the biggest return on the ASX, it shows a very impressive double-digit return. It's a level of return that means investors can spend the dividends (if they want to) and still see solid compounding of wealth.
It's a very compelling ASX dividend stock, in my view, which is why it's the biggest position in my portfolio.
