Commonwealth Bank of Australia (ASX: CBA) shares may be the biggest presence in the S&P/ASX 200 Index (ASX: XJO) and have delivered solid returns, but there are other ASX stocks that I'd pick above the ASX bank share today.
I can understand why investors are drawn to Australia's biggest business. It's the bluest of blue chips, with a leading market share in banking, a compelling record for dividend payments, and a leader in banking technology.
But, for multiple reasons, I'd call Washington H. Soul Pattinson and Co Ltd (ASX: SOL) shares a much more appealing buy. Let me explain why.
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Diversification
CBA generates a significant portion of its revenue from residential lending, and a vast majority of its earnings come from lending in Australia and New Zealand. Its activities are clearly typical of a bank. Investors expect CBA to remain a bank in the coming years.
Any financial institution can provide loan and savings products with similar features to CBA. Thanks to internet banking and the ability to compete without a national branch network, I think CBA's margins may not be as strong in the future as they were in the past. Macquarie Group Ltd (ASX: MQG) is a fast-growing competitor in the banking space.
Soul Patts is an investment house that has a diversified portfolio across a number of sectors, including telecommunications, resources, industrial properties, agriculture, financial services, swimming schools, electrification, and plenty more. The ASX stock is not heavily exposed to one sector.
Soul Patts has the investment flexibility to grow into new industries and find the best opportunities.
Dividend record
CBA may have one of the most reliable dividend records of the ASX bank share sector, but it's nowhere near the best of the entire ASX.
CBA has increased its annual dividend each year since the COVID-impacted year of 2020. Soul Patts has grown its annual dividend every year since 1998.
Plus, the growth rate of Soul Patts' annual dividend has been significantly higher. In FY25 alone, CBA grew its annual dividend per share by 4% (to $4.85 per share) and Soul Patts grew its annual payout by 8.4% (to $1.04 per share).
In terms of passive income, over the long term, I view Soul Patts as a much more compelling choice.
Earnings growth
A key reason Soul Patts has delivered stronger dividend growth over time is its superior earnings growth. I'm not expecting Soul Patts to grow profit at a faster pace than CBA every single year in the future, but I believe the way Soul Patts is structured gives it a better chance of outperforming over the long term.
In FY25, Soul Patts reported that its pre-tax net asset value (NAV) grew by 8.7% and its net cash flow from investment increased by 10.3%. CBA's FY25 cash earnings increased by 4% and its pre-provision profit only rose by 3%.
In the next ten years, I believe the investment ASX stock will be able to deliver much stronger earnings growth than CBA, creating stronger total returns.
