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ResMed’s dividend jumps 47%

ResMed (ASX: RMD) has delivered yet another consecutive quarter of top line growth with fourth-quarter revenue up 11% to US$414.6 million. For those keeping score that makes it ResMed’s 74th consecutive quarter of top line growth since it listed in 1995. There are few companies anywhere that can boast such a long history of sustained revenue growth.

Although net profit fell slightly by US$3.6 million to US$73 million for the quarter this was driven by a one-off US$24.76 million settlement paid to the University of Sydney. Even with the small net profit dip, the company felt comfortable enough in its long-term prospects to increase its quarterly dividend by 47% up to US2.5c per share for the ASX-listed shares.

ResMed develops products for the treatment and management of respiratory disorders, with a focus on sleep-disordered breathing such as sleep apnea. The company’s products are sold in over 70 countries worldwide through direct offices and distributors. It has been estimated that up to 20% of the US adult population suffers from some form of breathing sleep disorder, indicating that ResMed still has a lot of potential for sales growth.

The company faces some challenges in the coming year as US health care reforms are implemented. The new law imposes a 2.3% tax on sales of medical devices, which ResMed has said may apply to its products. Another significant development is the implementation of competitive bidding, which is a program that will require suppliers to submit bids for some products at lower prices than what the US government’s Medicare has paid previously.

ResMed’s Americas boss Jim Hollingshead underlined the uncertainty created saying, “It’s hard to know exactly what will happen, say, over the next quarter or the next two quarters as that continues to play itself out”. Despite the ambiguity the current pricing pressure is expected to ease over the medium term “Our anticipation is that most of the pressure is probably (last quarter) or maybe into (the next quarter) a little bit.”

ResMed’s chief executive Mick Farrell was happy with the company’s latest quarter but also noted that management were thinking long term. “We believe we are in mile one of a marathon, with plenty of energy, innovation and a solid strategy for the 25-plus miles to go.” A long-term focus is always an encouraging sign in a fast-growing company. With 74 consecutive quarters of revenue growth already under its belt, management could easily consider itself further along than mile one.

ResMed isn’t the only Australian healthcare company punching above its weight internationally. Acrux (ASX: ACR) specialises in the development of drugs that are delivered through the skin. These drugs address a range of ailments, including menopause, contraception and pain relief. Acrux’s full year net sales have increased by US$100 million to a total of US$124 million.

Sirtex Medical (ASX: SRX) is a biotechnology and medical device group that utilises small particle technology to distribute liver cancer treatments. Full-year results have not yet been released but the company has announced that the number of doses sold increased by 13.1% in the latest quarter – the company’s 36th consecutive quarter of sales growth.

Not everyone will be happy with the dual-listed ResMed’s results. Many US-based investors have been short-selling the stock — betting that the company’s latest results would disappoint  In recent weeks short interest in the stock has risen significantly, with approximately a quarter of all US-listed shares sold short. If the company continues to perform, then busted short investors needing to cover their positions could push ResMed’s share price up even further.

Foolish takeaway

ResMed is dealing with short-term uncertainty in its core US market, however management appears to be handling it well and is focusing on the long term. The stock does not look super cheap at the moment, but few companies with such a long history of steady growth do. If the company can successfully navigate US healthcare reform then it may find itself in a great position to continue growing. With many US investors currently betting the stock will fall it makes sense to be cautious, but if those short sellers are proved wrong it will only help drive ResMed’s share price higher.

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Motley Fool contributor Matt Joass has no position in any stocks mentioned in this article. You can follow him on Twitter @SoloThink.

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