Protein science and blood plasma company CSL Limited (ASX: CSL) has been pretty flat over the last six months (up less than 2%), and it yields only 1.6%, so it’s understandable that some Australian investors (who love their dividends) might be hesitant to hold. However, investors throughout the world see the value in this stock – here are three reasons why it deserves a spot in your portfolio.
1) Return on investment (ROI) has been steadily growing for 10 years. This is rare for a blue-chip superstar stock. For example, biotech company Cochlear Limited (ASX: COH) has had fairly flat ROI over the last 10 years, and mining companies tend to see their ROI fluctuate with commodity cycles.
2) Dividends have grown consistently over the last decade, with a compound annual growth rate (CAGR) of 27.3% since 2004. However the CAGR from 2010 – 2014 is just 11.2%, which I believe is more indicative for the coming decade (another decade of 27.3% dividend growth is a ludicrous suggestion, in my opinion.) However, I think 10% growth is reasonably likely, as the company continues to buy back shares.
3) The ageing population in developed nations will drive demand for CSL’s products. For example, the company’s new drug, Kcentra, is designed to treat people (undergoing surgery) who are on the drug Warfarin. Warfarin is an anti-coagulant used to reduce the risk of heart attack, and it is generally administered to people as they age. The more people who are on Warfarin, the more demand there will be for Kcentra.
Over the long term, I believe that an investment in CSL will probably beat the market. The company is considered one of the safest stocks, but I do fear it is a bit too expensive at the moment. Generally, it is better to buy shares in a company that is slightly out of favour. For example, I suggested readers buy shares in ResMed Inc. (CHESS) (ASX: RMD) after they released some disappointing results, and I would do the same if CSL temporarily disappointed the market. It’s also worth keeping in mind that were you to buy CSL at a better price, then the dividend yield would be more attractive.