This was the only ASX 200 share I bought in September. Here's why

I've been topping up on this defensive ASX share this month.

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Key points
  • I have been buying shares of Soul Pattinson shares
  • The business grew its profit and cash flow in FY22, which is funding a growing dividend
  • I think the defensive style of the business is attractive

The S&P/ASX 200 Index (ASX: XJO) has seen plenty of ups and downs in recent weeks. I've been using that as a useful way to buy Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares.

Soul Pattinson is an investment conglomerate that's invested across a number of industries, including telecommunications, building products, financial services, resources, agriculture, property, and so on.

There are a few key reasons why I decided to buy more shares of the business.

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.

Image source: Getty Images

Better value

I like being able to buy businesses at good value, hopefully at a price that's cheaper than they're actually worth.

Since the start of 2022, the Soul Pattinson share price has dropped by more than 10%. That's not a big fall, it represents a similar fall to the ASX 200. A lower price means this company is better value, in my view.

The ASX 200 share also reported in its FY22 result that during the financial year its pre-tax net asset value (NAV) increased by 13.8%, outperforming the All Ordinaries (ASX: XAO) by 20.2% and outperforming the Soul Pattinson share price by 35.1%. In other words, the underlying value of the portfolio compared to the share price improved during the year.

The Soul Pattinson share price was at a 6.9% discount to the pre-tax NAV per share at 31 July 2022.

Excellent dividend record

The investment company continues to generate impressive numbers, in my opinion. The FY22 group regular net profit after tax (NPAT) rose 154% to $834.6 million, and net cash flow from investments went up 93% to $347.9 million. On a per share basis, net cash flow from investments went up 28%.

Soul Pattinson uses that growing cash flow to pay a bigger dividend to investors. This allowed the business to grow the ordinary dividend by 16.1% to 72 cents per share. At the current Soul Pattinson share price, that translates into a grossed-up dividend yield of 3.8%.

The ASX 200 share has grown its dividend every year in a row for more than two decades. The business has also paid a dividend every year since it listed in 1903.

With the FY22 result, it also declared a special dividend of 15 cents per share, thanks to the strong performance and dividends from New Hope Corporation Limited (ASX: NHC).

Defensive portfolio

In this period of uncertainty, it's hard to know what's going to happen next.

But, I believe the way Soul Pattinson's investment portfolio is set up means that the company can "manage risk", as management put it.

The ASX 200 share's investment style is "well-suited to the current environment". It's focused on businesses that are profitable with low-cost operations, that have robust and defensible business models, as well as market power to pass on inflationary costs.

I also like that the business can hunt for opportunities in the current environment, so it wouldn't surprise me to see that it has found some opportunities, particularly in the private business space, as it is looking for new opportunities in this area.

Motley Fool contributor Tristan Harrison has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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