Macro Intelligence: Washington H Soul Pattinson's dividend success story

Article written by Juliette Saly (ausbiz)

Spotlight on Soul Patts

In this week’s edition of Macro Intelligence, we take a deep dive into Washington H. Soul Pattinson (ASX: SOL).

Remarkable dividend growth despite earnings decline

Investment conglomerate Soul Patts lifted its dividend by more than 9% despite a 28% drop in FY24 NPAT to just under $500 million, in part due to lower contributions from Brickworks (ASX: BKW).

Soul Patts holds significant stakes in manufacturing firm Brickworks within its strategic portfolio, as well as in coal miner New Hope and telecommunications provider TPG.

Impressive financial performance

Revenue for the full year rose 32% to $831.9 million, while its net asset value grew nearly 9% to approximately $12 billion. Net cash flow increased 10.3% to 468 million dollars.

Soul Patts declared a final, fully franked dividend of 55 cents per share, up 7.8% on FY23’s final dividend. The boosted final dividend saw total dividends for the year rise 9.2% to 95 cents per share, fully franked.

This marks 24 years of consecutive dividend growth for Soul Patts, the longest such streak of any company on the ASX 200.

Soul Patts FY24 financial snapshot

A 121-year legacy of diversification

CEO Todd Barlow told ausbiz he’s hopeful the company can achieve another year of dividend growth. If successful, Soul Patts would become the first Australian listed company to join the global “Dividend Aristocrats,” where companies deliver a quarter-century of dividend growth. Washington H. Soul Pattinson listed on the (then) Sydney Stock Exchange in 1903.

Barlow also noted that, 121 years later, the company continues to diversify. Soul Patts has de-risked its portfolio through further uncorrelated asset classes, particularly in private markets like credit and private equity.

The acquisition of Milton Corporation in 2021 has been fruitful for Soul Patts, contributing to a 13.5% annual growth in its portfolio over the past three years.

Barlow remains optimistic about further acquisitions, saying, “deal flow begets deal flow.” He also expressed confidence in the company’s investment in Brickworks, highlighting industrial property as “a really good asset class.”

Soul Patts shares: analysis

Soul Patts shares have grown, along with its dividend payments. Over the past five years, shares have risen almost 68%, a better return than the ASX 200, which has risen 27% in that time.

Year to date, Soul Patts shares are up 6%, underperforming the 8.5% gain in the broader market.

Soul Patts daily chart

Short-term caution and long-term interest

Technical data shows investors should be cautious in the short term as the 20-day moving average is falling, while at the same time, upwards momentum wanes. On a longer-term basis, the 200-day moving average is trending upwards, highlighting longer-term investor interest in the stock.

Meanwhile, Soul Patts has a Relative Strength Index (RSI) of 72.9, which has penetrated the overbought line of 70, suggesting the price gain of 4.9% in the last 14 days is unusually high. Its RSI was previously 67.6.

Analyst coverage and recommendations

Few analysts cover the stock. Refinitiv data shows two buys, with a target price of $35.60, a gain of 2% from current trading levels. Morgans has an add on Soul Patts, saying the management team continues to deliver both organic and inorganic growth over the long term.

When it comes to Brickworks, there are six holds, one strong buy, and one buy on the stock according to Refinitiv data. No analysts have a sell on Brickworks. Its current target price is $30.16, up 3.3%.

Jarden raised its target price on the stock by 5.3% to $30 a share, while Bell Potter raised its target price by over 5% to $31. However, the broker has cut its recommendation on the stock to a hold from a buy.

Stock performance and analyst recommendations

Proceed with caution

ASX Tradewatch data meanwhile shows investors in Brickworks need to proceed with caution. The medium-term picture is solid; however, other indications are mixed as the 200-day moving average on the stock is neutral and the 20-day moving average is trending lower, suggesting a bearish outlook. Brickworks shares are up 5% year to date and have risen close to 16% over the past 12 months.

Brickworks daily chart