MENU

6 reasons to buy ResMed Inc. for a blue-chip retirement

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).

There’s also a junior company offering…

Record profits and a fast growing, fully franked dividend...

This little known ASX company has already delivered eight consecutive years of profit and dividend growth... but with even more growth ahead, the shares are still a firm "BUY" today! Discover The Motley Fool's #1 dividend pick in our newly updated report. Simply click here for your FREE copy right now.?

Motley Fool contributor Tom Richardson owns shares in ResMed Inc. You can find him on Twitter @tommyr345

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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 Financial Services Guide (FSG) for more information.