Recently I’ve stated several times that Medibank Private Ltd (ASX: MPL) was not a buy at its recent highs of $3.20 per share. There were several reasons, including strong competition, a high price, dwindling levels of individual healthcare coverage, and average business performance that led to a loss of market share. However, these concerns by themselves aren’t necessarily a reason to sell Medibank Private.

Here’s why the company continues to be a good long-term hold in your portfolio:

  • Government-legislated increases in premiums per annum, resulting in growing revenues if the company can maintain market share
  • Defensive market segment – it’s in the government’s interests to encourage people to take up private health insurance, and it’s often a good deal for individuals also
  • 3.6% fully-franked dividend, and a small but growing investment portfolio

Warren Buffett showed that insurers’ can build impressive investment portfolios and indeed Insurance Australia Group Ltd (ASX: IAG) and QBE Insurance Group Ltd (ASX: QBE) have billions of dollars in stocks and bonds that contribute significantly to profit. Unfortunately, Australian insurers haven’t been anywhere near as good as investing as Buffett’s Berkshire Hathaway, but Medibank can still build its own ‘float’ which will contribute to profits. Higher interest rates in the long run could also be a small tailwind.

Investors should be prepared for a bumpy ride though, as insurers traditionally have ‘lumpy’ profits because the claims they receive can’t be reliably forecast in advance. Additionally, I’d say the healthcare system is ripe for a few government changes, but they’re unlikely to have a serious impact on the health insurance business, because this is one of the government’s mechanisms for reducing the burden of the public health system.

Trading at over 20x earnings, I wouldn’t feel comfortable buying the business at today’s prices. Yet with all the ‘Brexit’ noise, investors may well be able to pick it up significantly cheaper in coming weeks if market confidence tumbles. Either way, the company continues to look like a solid ‘Hold’ for the existing shareholders out there.

Forget companies cutting dividends like BHP and Rio Tinto when you can get GROWING dividends.

This "dirt cheap" company is growing like gangbusters, and trading on a fat, fully franked dividend yield. With interest rates set to stay at these low levels for years to come, for income-hungry investors, including SMSFs, this ASX company could be the "Holy Grail" of dividend plays for 2016. Click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.