Why I'm planning to buy more Soul Patts shares in 2027

Detailed summary

I think Soul Patts is a great long-term buy. The post Why I'm planning to buy more Soul Patts shares in 2027 appeared first on The Motley Fool Australia.

Washington H. Soul Pattinson and Co Ltd (ASX: SOL) shares are already a sizeable part of my portfolio. I'm planning to buy plenty more Soul Patts shares in 2027 and beyond.

I've long seen the investment house as an attractive share to own with its defensive cash flow and rising dividend (which has risen every year since 1998). Those positives remain, but the company continues to add more pleasing attributes that increase the appeal.

The business has been listed on the ASX since 1903, making it one of the oldest companies we can buy in Australia. Being old doesn't necessarily make it a great investment, but I think it's pleasing to see that the business does have a track record of longevity through world wars, economic recessions, pandemics, and so on.

Soul Patts is invested in a number of asset classes and sectors, such as energy, swimming schools, telecommunications, finance services, and property.

The business has significantly increased its exposure to credit this decade. But, unlike some players in the private credit sector that have suffered, Soul Patts has an impressive track record and it's able to generate stronger returns these days thanks to higher interest rates.

Soul Patts recently gave an investor briefing that outlined the positives of its credit strategy and a couple of things stood out.

As with many of its investments, Soul Patts is careful to consider the downside and risks. Lenders are paid first when a business runs into trouble. The owners' equity absorbs losses before Soul Patts' capital is touched.

It noted that 23 loans and bonds have been repaid in full with no capital losses. Impressively, Soul Patts noted that its internal rate of return (IRR) was 14.3%. Considering the downside protection, that's a great return, in my view.

The company has increased its capital deployed over the last couple of years, with the vast majority (74%) of that being senior secured lending and another 19% being junior secured lending.

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