ASX 200's hidden treasure: a dividend giant boasting a 5% yield

2 min read | January 23, 2024 12:34 AM EST | By Team Kalkine Media

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Sonic Healthcare Ltd (ASX: SHL) stands out as an S&P/ASX 200 Index (ASX:XJO) dividend giant and, in my opinion, a hidden gem.

With a market capitalization of nearly $15 billion, Sonic Healthcare is a significant player on the ASX, although not as large as companies like Woolworths Group Ltd (ASX:WOW) and Telstra Group Ltd (ASX: TLS).

What does Sonic Healthcare do?

Sonic Healthcare is globally recognized as a leading pathology business. The company plays a crucial role in assisting healthcare professionals in diagnosing and testing patients. Operating in various countries, including the US, Australia, Germany, the UK, Switzerland, Belgium, and New Zealand, Sonic Healthcare has established a prominent presence in the healthcare industry.

In addition to its pathology services, Sonic Healthcare boasts a substantial radiology division that generated $796 million in revenue during FY23. The company's total revenue for the same financial year amounted to $8.17 billion.

Why is it a dividend leader?

Sonic Healthcare has a history of paying dividends for several decades, regularly increasing the payout. The company follows a progressive dividend policy, aiming to grow dividends for shareholders whenever possible. Few ASX-listed businesses have displayed such consistent dividend growth over the last two decades.

While Sonic Healthcare is not guaranteed to increase its dividend every year, its position in the healthcare sector makes it a defensive choice for income-focused investors. The company benefits from organic growth, driven by factors such as the aging population and expanding populations. Sonic Healthcare has also been strategically making acquisitions, enhancing its scale in key markets like Australia, the US, and Europe.

The company is proactive in adopting technological advancements, investing in artificial intelligence (AI) to improve operational efficiency and potentially enhance margins in the future.

Dividend Yield:

In FY23, Sonic Healthcare paid a dividend per share of $1.04, translating to a trailing grossed-up dividend yield of 4.7%. Commsec suggests the potential for a dividend per share of $1.071, leading to a forward grossed-up dividend yield of close to 5%. While not the highest yield available, the reliability and growth history of Sonic Healthcare's dividends make it an appealing choice for income-focused investors.

In conclusion, Sonic Healthcare stands out as a hidden gem in the ASX, combining a strong market position, consistent dividend growth, and strategic initiatives for future growth and efficiency.

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