Is SOL a good dividend pick of all times?

Washington H. Soul Pattinson and Company Limited (ASX: SOL)

SOL is an Australian investment house, which holds interests in across diversified industries. Some notable listed investments of the company includes – TPG Telecom (ASX: TPM), New Hope Corporation Limited (ASX: NHC), Brickworks Limited (ASX: BKW), Australian Pharmaceuticals Industries (ASX: API), Milton Corporation Limited (ASX: MLT), Apex Healthcare Berhad (APEX.MK), TPI Enterprises Limited (ASX:TPE), Clover Corporation Limited (ASX: CLV).

Besides, it also holds interest in non-listed entities, and some of the names are – BKI Investment Company Limited, Round Oak Minerals Pty. Limited, Pitt Capital Partners, Ampcontrol Pty Limited.

On 9 May 2019, the company released a letter to the shareholders on exchange. Notably, since then, the company has witnessed substantial activity from the investors. Importantly, the substantial holders in SOL had reduced their voting power or person’s votes in the company- they include of Novonix Limited with a change in the interests on 24 June 2019 and the current voting power of 12.51%. Mitchell Services Limited on 14 June 2019, reduced its voting power in SOL to 9.78 percent. While the other substantial holder, Syndicated Metals Limited (ASX: SMD) change in interests in SOL was effective 20 May 2019, and now holds 27. 43 percent voting power.

Admittedly, the letter included the half-year review of the results, and it provided the ongoing scrutiny of the TPG – Vodafone Hutchison Australia merger. Besides, the company closed the half-year on 31 January 2019. The company’s regular profit after tax stood at $186.7 million in 1H19, up by 12.2% over the 1H18. Similarly, its statutory profit after tax was $179.2 million in 1H19, up by 22.6% over the 1H18.

Meanwhile, the regular profit after tax for the half-year ended 31 January 2019 was the company’s highest ever figure recorded for the first-half of the year. Importantly, the regular profit was driven by a solid 27.3% increase in New Hope backed by escalated prices of coal, and Brickworks Limited was up by 73.7% due to strong property earnings. More importantly, the substantial gains by New Hope & Brickworks were partly offset by Round Oak’s heightened start-up costs along with expenses related to the development of various projects.

Net Assets (Source: Company’s Letter to Shareholders)

As per the release, the pre-tax asset value of the portfolio as on 31 January 2019 was $6 billion, which depicts an increase of 10.2% or $554 million over the six-month period. Besides, the company’s investments increased at this rate when the All Ordinaries Index was down by 6.7% in the similar period. Meanwhile, the company suffered a setback in its Financial Services, Pharmaceutical and Listed Equity space, which were impacted by equity market.

Dividends: Reportedly, the company had declared a fully franked dividend of 24 cents per share for the half-year period, which was paid by 9 May 2019. Besides, the total shareholder return stood at +56.5% for the year as on 31 January 2019.

It should be noted that the company has demonstrated an unconditional ability to pay dividends over a long period of time. Since the listing in 1903, it has never missed a dividend payment, and even at times of Global Financial Crisis of 2007–08 and the Great Depression of the 1930s.

20 Year Interim Dividends (Source: Company’s Letter to Shareholders)

The dividend-paying capability of the company depends upon the income distributing abilities of the underlying businesses of the company’s investments. Besides, the income generated from the interests and property gains on assets. Admittedly, the company declares dividends after considering the regular cash flows less regular operating costs. Further, the company operates a diversified portfolio, which provides reliable cash flows to distribute increasing fully franked dividends to the shareholders of the company.

Review of some of the Notable Entities

New Hope Corporation Limited (ASX: NHC)

Reportedly, NHC had reported $159.8 million of net profit after tax and before non-regular items for the half year 2019, which depicts an increase of 33% over the similar period in 2018. Besides, the strong numbers were backed by strong thermal coal prices, escalated production at Bengalla, better realised pricing on oil sales and increased interest in Bengalla JV.

Besides, in its latest quarterly report for the period ending on 30 April 2019, the company had reported about the softened Index prices for export thermal coal. Further, the company increased its stake in Bengalla JV by an additional 10%. Additionally, NHC accounted for $62.4 million of the company’s statutory profit after tax for the half year, and $82.1 million was contributed to regular profit after tax.

On 9 August 2019, NHC’s stock was trading at A$2.315, up by 0.652% (at AEST 12:54 PM).

TPG Telecom Limited (ASX: TPM)

Reportedly, the company’s highlights for the half-year ended 31 January 2019, included EBITDA before impairment of $420 million, NPAT of $46.9 million and EPD of 5.1 cents per share. Besides, TPM had announced an interim dividend of 2 cents/share which was fully franked. Further, the legal proceedings are underway regarding the merger.

Further, it contributed $9.7 million to the company’ s statutory profit after tax, and the contribution to regular profit after tax was $56.9 million. Additionally, TPM has not disclosed any significant updates except merger proceeding.

On 9 August 2019, TPM’s stock was trading at A$6.8, up by 0.592% (at AEST 12:54 PM).

Brickworks Limited (ASX: BKW)

Reportedly, BKW posted a statutory NPAT of $115 million for the half-year ended 31 January 2019, and the statutory NPAT was up by 18% over pcp. Besides, it distributed a fully franked dividend of 19 cents/share.

Further, BKW’s contribution to the company’s statutory profit after tax for the half year ended was $58.5 million, and contribution to regular profit after tax was $41.9 million. As notified on 6 May 2019, the company had recently created a joint venture with FBR Limited (ASX: FBR), and the name of the JV is Fastbrick Australia Pty Ltd.

On 9 August 2019, BKW’s stock was trading at A$16.080, up by 0.815% (at AEST 12:53 PM).

Financial Services Portfolio

Interests in Financial Services (Source: Company’s Letter to Shareholders)

Reportedly, the companies in the financial services portfolio include fund management, corporate advisory and Listed Investment Companies (LICs). Besides, the portfolio added $8.7 million to the company’s statutory profit after tax for the half year.

Other Notable Entities: As per the release, SOL’s portfolio of investments reaches out to the pharmaceuticals and property as well. Under Pharma, the company’s portfolio contributed $6.3 million to the company’s statutory profit after tax for the half year. Under Property, the investments decreased by $70 million due to the sale of 160 Pitt Street and other movements.

Besides, Round Oak Minerals Pty Limited, a privately held company, 100% owned by SOL, had contributed to a loss of net loss of $22.7 million to the company’s statutory result after tax for the half year, as previously mentioned due to developmental costs. Below figure depicts some additional investments of the company.

Other Investments (Source: Company’s Letter to Shareholders)

Conclusion: It appears that SOL is an emerging Warren Buffet of Australia. Notably, the diversified portfolio of the company allowed it to achieve demonstrated history paying of dividends along with growth. Importantly, the company provides fully franked dividends.

The markets have performed extremely well this calendar year, which reached all time as well. More importantly, the company’s financial year 2019 ended on 31 July 2019, and the markets have depicted subdued sentiments since 30 July 2019. Consequently, it can be said that the portfolio of the company would be better than the first half.

On 9 August 2019, SOL’s stock was trading at A$21.040, down by 0.19% (at AEST 12:52 PM).


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