The Ramsay Health Care Limited (ASX: RHC) share price briefly went under $63 last week, but has since recovered to $67.34. Where will the price go now?
Ramsay is Australia's largest private hospital operator with a market capitalisation of $13.6 billion. Here are three reasons why I think it would be a great addition to any portfolio:
Ageing population tailwind
There is a large cohort of baby boomer Australians who will be entering retirement age over the next twenty years.
This is sadly the time when people are most likely to need private hospital services with elective surgery. Ramsay has a large tailwind of potential patients that may be using its services over the coming years.
The choices people make with their health aren't really related to economic cycles or property prices, which makes Ramsay's growth and earnings more defensive and reliable than most businesses.
Overseas expansion
Ramsay doesn't just have operations in Australia, it also has a presence in the United Kingdom, France, Malaysia, Indonesia and Italy. Ramsay is actually the fifth biggest private hospital operator in the world.
By having hospitals in multiple countries it diversifies risk in-case any country has a problem. It also means Ramsay can divert funds to any country it thinks would be best to grow further in, including expanding into countries it doesn't currently have a presence in yet.
Dividend champion
Ramsay isn't known as being a great dividend payer, but it should be. It has increased its dividend every year since 2000.
In its latest report to 31st December 2016 Ramsay only paid out 53 cents per share out of its 128.9 cents of earnings per share, resulting in a payout ratio of 41.1%. This is very sustainable and allows the company to re-invest a lot of the profit back into the business for future growth.
Risks
Funding is the key risk to Ramsay. The government, patients and private health insurers such as Medibank Private Ltd (ASX: MPL) would all like healthcare costs to be lower.
As long as Ramsay can continue providing top quality care then it should be able to continue to increase prices at a reasonable rate.
Foolish takeaway
Ramsay is trading at 25.6x FY17's estimated earnings with a grossed-up dividend yield of 2.65%. I think now is a good time to buy one of the best businesses on the ASX whilst it's trading below $70.
If Ramsay doesn't have a big enough dividend yield, perhaps you'd prefer our number one dividend pick for 2017 which has a grossed-up dividend yield of over 7.5%, is expanding overseas and has increased its dividend every year for the last decade.
