CSL Limited (ASX: CSL) has risen by 10% in 2016.
That's less than the gains made by healthcare peers Ramsay Health Care Limited (ASX: RHC) and Cochlear Limited (ASX: COH), which are up by 11% and 42% respectively. However, it leaves CSL with a price to earnings (P/E) ratio of 30 versus 18 for the ASX. Despite this, its shares are set to rise further for these four reasons.
Dividend appeal
CSL currently yields 1.4%, which is a third of the ASXs yield. However, its dividend growth potential is significant, mainly because of its sound financial standing. For example, CSL has a net debt to equity ratio of 63% and paid out 53% of its free cash flow as a dividend in financial year 2015. This is higher than the 51% from the previous year, but shows that CSL could increase dividends at a faster pace than free cash flow growth and maintain its sound financial footing. A mix of a rapidly rising dividend and a falling interest rate could boost investor sentiment towards CSL.
International exposure
CSL operates in over 30 countries across the globe. The forecast weakening of the Aussie dollar versus the US dollar and other major currencies could therefore provide a positive currency translation in the near term. As well as this, operating in a broad range of regions reduces the risk of investing in CSL since it is less reliant upon one particular region for its sales. This helps to justify CSLs premium rating versus the wider index, since its risk/reward profile is more appealing.
Growth potential
Due to CSLs cash flow being strong and consistent, it is able to invest heavily for long term growth. For example, its R&D spend in FY 2015 was US$462 million and its total spend over the last five years has been in excess of US$2 billion. This has resulted in a healthy and diverse pipeline of potential new treatments which has the scope to positively catalyse CSLs top and bottom lines.
Further, CSL
Stability
CSL has a resilient and stable business model, as evidenced by its increase in EPS of 21.8% per annum over the last decade. The economic outlook for Australia and the global economy may be uncertain, but CSL
