Investing the dividends we receive in new ASX shares is one of the best things we can do.
Compounding is a very powerful force, particularly when it's supercharged by putting new dividends back into our portfolios.
Investors can choose to take part in a dividend re-investment plan (DRP) or receive the dividend as cash and then choose which ASX share we buy.
I'm planning to put my recently received dividends into Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) for two reasons.
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Adjusting diversification
When I put money to work in my portfolio, I like to choose investments I believe will compound for many years.
Soul Patts could be one of the best options for an ultra-long-term investment – it's already one of the oldest businesses on the ASX, it has been listed for 120 years.
Not only does it have a great portfolio today, but the investment team have the flexibility to change and add to the portfolio as opportunities arise.
It's invested in sectors like energy, communication services, resources, financials, industrials, retailers, healthcare, banks, technology, industrial properties, building products, agriculture, water rights, swimming schools and plenty more.
I like that investing my dividend income in this ASX share provides pleasing diversification, and in the coming years, its portfolio could continue to evolve to be further future-proofed.
In recent times, the business has said that it's actively looking for opportunities with international businesses, which I think is a smart idea because there are a lot more businesses – potential opportunities – outside of Australia than inside it.
The Soul Patts portfolio has performed well. Past performance is not a guarantee of future performance, though, of course. But, its portfolio has performed very pleasingly – over the last 25 years it has returned an average of 12.9% per year, outperforming the ASX share market by an average of more than 4% per year.
Growing dividend
The other key reason that Soul Patts really appeals to me is that it aims to pay a larger dividend per share each year. Not many ASX shares can say that they have increased the payout every year for the last decade.
Soul Patts has increased its annual regular dividend every year since 1998! That's almost three decades of dividend growth, which I think is very impressive. The interim dividend has increased over those 28 years at a compound annual growth rate (CAGR) of 10.4%.
In the FY26 half-year result, it increased its interim dividend by 9.1% to 48 cents per share.
Over the next five years, I think the Soul Patts share price and dividend could rise materially, meaning the outlook is excellent.
