Lifetime dividend share Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is my favourite pick for passive income.
There are not many businesses on the ASX that are more than 100 years old. Soul Patts, as it's commonly called, has been listed for around 120 years.
Incredibly, the business has paid a dividend every single year in that time – more than a century of payouts! The dividends have kept coming through world wars, pandemics, recessions and inflation.
There are multiple reasons to like this lifetime dividend share. It looks even more attractive after dropping 15% (at the time of writing) in the last several weeks.
Diversification
It can take multiple investments in individual businesses to create a diversified portfolio. But, with Soul Patts, it comes with instant diversification.
The company is invested in numerous sectors including telecommunications, resources, industrial properties, building products, financial services, agriculture, swimming schools, healthcare, credit and more.
It owns a portfolio of both listed and unlisted businesses. Some of its investments include TPG Telecom Ltd (ASX: TPG), New Hope Corporation Ltd (ASX: NHC), Tuas Ltd (ASX: TUA), Nexgen Energy (Canada) CDI (ASX: NXG), Electro Optic Systems Holdings Ltd (ASX: EOS) and Aeris Resources Ltd (ASX: AIS).
Pleasingly, the business has the freedom to invest in any sector or size of business that it thinks can generate pleasing returns for the portfolio and shareholders. Being able to change its portfolio as time goes on should mean the business can ensure it always has a future-focused portfolio that can produce good returns.
Growing dividend
One of the most attractive things about this lifetime dividend share is how long it has been increasing its payout for investors. If a dividend is being increased, then it's not going backwards.
A rising dividend also speaks of the leadership's confidence as well as the rising profits and cash flow of the business.
The company funds its dividend payouts from the cash flow generated by its portfolio of investments, after paying for its expenses.
Soul Patts has increased its dividend every year going back to 1998, which is the longest record on the ASX. I think there's every chance the payout growth can continue for the foreseeable future.
Since FY22, it has increased its cash flow from investments per share at an average of 16.5% per annum, while the dividend per share has grown at an average of 13.5%.
At the time of writing, it has a grossed-up dividend yield of close to 4%, including franking credits. That's a solid starting point for this compelling lifetime dividend share.
Solid capital growth
Some ASX dividend shares don't deliver much capital growth, whereas Soul Patts has been very successful at delivering both dividend growth and capital growth for shareholders.
The business has delivered significant (pre-tax) net asset value (NAV) per share growth.
Soul Patts recently said in a shareholder briefing that its pre-tax NAV has returned an average of 10.5% per year since the Milton merger in FY22, outperforming the ASX share market by an average of 1.6% per year.
The company has built its portfolio to be resilient, to protect capital and outperform through the economic cycle. It has a focus on more defensive assets and diversification helps reduce correlations.
I like the lifetime dividend share as an idea for both capital growth and long-term dividends.
