A dividend aristocrat is a company that has increased dividends annually for 25 years. Soul Patts is the only ASX listed share that has made the cut.

Soul Patts’ (ASX: SOL) fiscal 2025 adjusted net profit after tax of $491 million was flat on the prior year. Full-year dividends of $1.03 per share, fully franked, were 8% higher, representing a 3% dividend yield at current prices.

Why it matters: Cyclicality weighed on Soul Patts’ earnings, with lower contributions from all but two of its investment portfolios. We expect adverse cyclicality to persist over the near term, with an eventual lowering of tariffs and interest rates supporting a recovery.

  • Shielding from the full impact of cyclicality, private credit, the company’s loan business, was a standout performer. Additionally, higher contributions from strategic shareholdings were driven by the Brickworks and Goodman joint venture, developing and leasing industrial property.

The bottom line: Our fair value estimate for no-moat Soul Patts is unchanged at AUD 35 per share. Soul Patts has completed its merger with Brickworks, and we have updated our valuations for the assets in Soul Patts’ portfolios.

  • Our sum-of-the-parts valuation comprises our valuations for Soul Patts’ publicly listed strategic holdings, New Hope and TPG, and other Australian listed stocks in its large-cap portfolio. We apply the estimated net asset value of other assets, including private equity, property, and credit.
  • Our valuation for Soul Patts is modestly higher than management’s estimates, given that both New Hope and TPG are materially below our fair value estimates. However, our valuation is below the share price, which surged on the announcement of the Brickworks takeover.

Between the lines: The new entity is likely to be included in the ASX 50, and perhaps the market is buoyed by nonfundamental reasons, like institutional interest and passive money flows, pushing the share price higher. Indeed, many ASX large caps trade on rich multiples.

Cyclicality weighs on Soul Patts’ fiscal 2025 earnings

Washington H. Soul Pattinson, or Soul Patts, is a value-style-oriented investment house with approximately AUD 13 billion in net equity value. Its approach to increasing shareholder value is somewhat distinct from many fund managers and capital allocators, benefiting from advantages in its corporate structure, investment style, and from a relatively unconstrained investment mandate.

Soul Patts allocates capital largely in Australian equity markets—both public and private—where it thinks its reputation as a long-term passive allocator of capital provides it with advantages. This reputation has been built over decades and is supported by a cross-shareholding with Brickworks, a unique corporate structure in Australian equity markets that partially shields Soul Patts from the vagaries of the equity markets. As a result, the firm has greater flexibility to allocate capital, including the ability to invest in a contrarian manner and with long time horizons. Soul Patts’ structure provides further advantages. Constraints imposed by the requirement to fund redemptions in bear markets, and/or the need to “index hug” in bull markets are less of a concern, as often is the case for mutual fund structures. While these attributes are advantageous, they don’t guarantee past successes will be replicated.

Soul Patts provides capital on a long-term and passive basis, differing from private equity firms that are actively involved in management and strategy of investee enterprises. The firm’s investment horizon also differs from private equity, with Soul Patts preferring to take very long-term buy-and-hold positions. While it often seeks investment opportunities that begin their lives in private equity markets, Soul Patts likes to float its investments in public markets in due course, while still retaining a significant stake in the business.

The 2021 acquisition of investment management company Milton changed the group’s portfolio composition. In 2020, 80% of net asset value was in three holdings: TPG Telecom, Brickworks, and New Hope Corporation. In 2024 these composed about half of the firm’s portfolio, with the remainder mostly small investments in a diverse range of companies.

Bulls say

  • Soul Patts total returns to shareholders have exceeded the comparable All Ordinaries Accumulation Index for the past 20 years.
  • The merger with Brickworks diversifies earnings, with more exposure to building products and industrial property.
  • Consistent with its track record, we expect Soul Patts to increase dividends each year regardless of investment performance.

Bears say

  • Soul Patts’ past successes are no guarantee that future capital allocation will be as value accretive.
  • The New Hope investment is bold, considering the significant carbon risk that thermal coal faces.
  • Brickworks’ industrial business is exposed to headwinds, including a decline in demand for brick products, increased operating costs, and cyclicality in housing construction.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.