It can be confusing for a beginner investor to know what ASX stocks to invest in. Should dividends or growth be the focus? What is a good price to pay for this investment?
There are plenty of interesting companies on the ASX that may be good investments, but there's one S&P/ASX 200 Index (ASX: XJO) stock that I believe could suit almost every portfolio: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
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What Soul Patts does
Soul Patts is not one of the most famous business names, like BHP Group Ltd (ASX: BHP) or Qantas Airways Limited (ASX: QAN), but it is one of the oldest. It has been listed on the ASX since 1903.
The company started off as a pharmacy business and eventually started making external investments in names like Brickworks Limited (ASX: BKW) and New Hope Corporation Ltd (ASX: NHC).
These days, the investment house has exposure to various industries and asset classes, including ASX shares, private equity, credit, and property.
Some of its larger ASX stock investments include Brickworks, New Hope, TPG Telecom Ltd (ASX: TPG), Tuas Ltd (ASX: TUA), BHP, Macquarie Group Ltd (ASX: MQG), CSL Ltd (ASX: CSL), Goodman Group (ASX: GMG) and Wesfarmers Ltd (ASX: WES).
Good mixture of returns
Soul Patts shareholders benefit when the underlying value of its portfolio increases. The company has designed its portfolio to be defensive and resilient to economic shocks, which might be comforting for beginner investors.
It's steadily making new investments, such as its acquisition of the entire electrification business Ampcontrol. As these businesses grow in value, they can drive up the value of Soul Patts, leading to capital growth for shareholders.
The cash flow received from its investment portfolio helps pay for dividends. The ASX stock has paid a dividend every year to shareholders since it was listed in 1903, and it has grown its annual dividend each year since 2000.
Over the 10 years to 30 April 2024, Soul Patts shares delivered an average return per annum of 11.3%, outperforming the All Ordinaries Accumulation Index (ASX: XAOA) by an average of 3.2% per annum. These figures do not include the benefit of franking credits. However, it must be said that past performance is not a reliable indicator of future performance.
It currently has a trailing grossed-up dividend yield of close to 4%, which I think is a solid starting yield for beginner investors.
Foolish takeaway
Soul Patts is an effective investment for beginners, in my opinion, because it can provide a mixture of dividends and capital growth. Its portfolio investments offer diversification while the growing dividend means we can benefit from owning shares without having to sell.
This ASX stock is one of the largest positions in my portfolio, and I'm planning to buy more of it over time. I think the current valuation is a good price to start a position.
