The S&P/ASX 200 Index (ASX: XJO) share Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is the biggest position in my portfolio, and it has increased my wealth the most compared to all of my other positions in dollar terms. It has more than doubled in the last five years, as the chart below shows.
This investment business really suits my needs. It provides a growing dividend, offers diversification within its portfolio, and has demonstrated a long-term track record of solid capital growth.
The business' investments are spread across a number of sectors including resources, telecommunications, swimming schools, agriculture, industrial properties, funerals, financial services, credit and plenty more. This ASX 200 share is a whole portfolio itself, of ASX share positions and private equity businesses.
I like the defensive nature of the business, which provides Soul Patts with dependable cash flows. Aside from excellent previous investments yielding today's returns, I think there's one factor that makes me believe it can continue delivering strong investment returns.
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The re-investment of profits
I'm optimistic of further gains because the ASX 200 share regularly puts retained profit to work in new investment opportunities.
I believe the best businesses have utilised the power of re-investing retained profit to generate growth very effectively by putting that money into profit-growing initiatives like new products and services, or acquisitions. I'm thinking of names like Microsoft, Meta Platforms, Alphabet, Amazon, Berkshire Hathaway and so on.
I'd say that Soul Patts also has a great record of profit generation, it has been around for over 120 years.
After paying a larger dividend to shareholders and paying for its costs, the business is able to retain some of its annual cash flow each year to put towards future investments that can help grow its portfolio value.
In the FY25 first-half result, the ASX 200 share reported that its dividend payout ratio was 55.8% of its net cash flow from investments. In other words, it kept around 44% of its net cash flow to be used within the business.
One of the company's most recent (known) investments was increasing its holding in funeral business Propel Funeral Partners Ltd (ASX: PFP), which is likely to benefit from the forecasted rising number of funerals over the coming years.
In the HY25 result, the ASX 200 share reported $1 billion of new investments into listed shares and private investments. I think these investments will help drive value in the years to come.
As Soul Patts expands its portfolio, and those investments themselves grow too, I think the business can become much larger thanks to the power of compounding.
