The Australian dividend stock Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is an excellent business for long-term investing, in my view. I'm very willing to buy it in any type of market, whether that's a booming ASX share market or a bear market.
I believe in this company's future. The business is already my largest position; through a combination of investments and growth.
I have indeed invested in Soul Patts shares through both weak times (like 2020) and stronger times. It's not the type of business I'd expect to rocket 100% in a year, but I'm a big believer in its ability to deliver pleasing compounding returns in the long term.
I'll run through why I think it's a good buy for all markets.
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Booming market
The Australian dividend stock is a diversified investment business with assets spread across listed shares and private businesses. Its portfolio is invested in areas like telecommunications, resources, industrial property, swimming schools, financial services, agriculture, electrification, retail, healthcare, credit, and so on.
I like its very flexible investment mandate because that means it can cast the widest net to find the best opportunities. When the share market is booming, Soul Patts can be selective with its investment choices and can sell some assets at high prices, if it wants to.
Soul Patts has delivered long-term returns for investors through both the good times and the bad. According to CMC Markets, Soul Patts shares have delivered an average return of 16.2% per year over the past five years, materially outperforming the S&P/ASX 200 Index (ASX: XJO).
The business has invested across a variety of sectors, allowing different parts of its portfolio to outperform in different market conditions.
Soul Patts generates cash flow from its portfolio of assets (mainly dividends), and it can utilise that cash to make further purchases in the coming years.
Bear market
The company says its aim is to grow shareholder wealth through a diversified range of investments that perform throughout market cycles. That includes managing investment risk.
This Australian dividend stock has focused on assets/businesses that can generate defensive cash flows but are typically capable of increasing cash generation in the coming years.
By having a portfolio of defensive but largely uncorrelated assets, it's able to limit any downsides for the overall economy or particular industry.
Interestingly, the company also said it's increasing its allocation to offshore markets, providing further diversification.
Not only can it insulate itself against the worst of a bear market, but it can also make investments during bear markets, taking advantage of lower prices.
Overall, the company can use both bear and strong markets to improve long-term returns.
