If you've got some spare money to invest for the long term, then don't look past healthcare business ResMed Inc. (CHESS) (ASX: RMD). The company's products help people with common sleep disorders and as sales have increased so has its share price. Here's why.
The fundamentals of ageing populations and unhealthy lifestyles contributing to rising obesity levels give the business a natural tailwind over long-term horizons. Moreover, ResMed and other medical studies have estimated that one-in-four adults have some form of sleep apnea, meaning it's operating in a large, underpenetrated market.
ResMed knows it cannot afford to rest on its laurels though, in fact developing innovative new products is key to further growth. It invests around 8% of annual revenues in research and development to develop new products to drive sales higher. With a track record of success to support that ambition, it looks a reasonable assumption that there's more to come.
Having grown revenues every year since 2006, ResMed's record of growing revenues is almost perfect. They were more than US$1.5 billion in the last financial year, with yet another record revenue result in the most recent quarter. This is a trend that could be expected to continue.
ResMed has been maintaining margins, in the most recent quarter ResMed grew operating profit, net income, and earnings per share year-over-year at a faster pace than revenue. Generally, it has been able to consistently maintain or grow margins as the business expands.
Overseas exposure is important for Australian investors who want to insure their portfolio against a slowdown in the domestic economy. One of the most effective ways to do this is to buy a company like ResMed with around 90% of revenues coming from outside Australia. Any slowdown at home may even benefit ResMed with a weaker Australian dollar effectively raising their dividend received when translated from U.S dollars.
ResMed pays out a steady income on a quarterly basis equivalent to 10 U.S. cents per year, equaling a yield of around 1.8% when selling for $5.68. That represents a payout ratio of only 41% of net income for the year-to-date financial year, meaning ResMed has plenty of scope to raise its dividend, invest for growth, or continue a share buyback program operated over the last five years.
ResMed looks one of the best healthcare stocks available on the ASX, along with others like CSL Limited (ASX: CSL) or Ramsay Health Care Limited (ASX: RHC).
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