In my opinion, these are five of the best quality stocks in Australia. They aren’t cheap so returns could disappoint in the short-term, but a portfolio of these five stocks should comfortably outperform the broader market over a multi-year holding period.
CSL Limited (ASX: CSL)
CSL is a global leader in the blood plasma industry and recently acquired a major flu vaccine business. As a biotechnology company, CSL stands to benefit from ageing populations across many of its markets. However, unlike other major drug companies, CSL does not depend on patents but instead relies on more sustainable forms of competitive advantage such as superior production and distribution scale and efficiency. It also has first class research and development capabilities.
Ramsey Health Care Limited (ASX: RHC)
Ramsey develops and operates hundreds of private hospitals in Australia, Europe and Asia. The company has established an excellent track record of doing so which is reflected in its share price performance. Ramsey’s share price is up over 4,600% since April 1999. Like CSL, Ramsey will benefit from demographic trends for the foreseeable future as the the usage and therefore value of its growing portfolio of hospital assets increases.
Sydney Airport Holdings Ltd (ASX: SYD)
There are few more valuable assets than Australia’s premier airport. The tourism industry is likely to keep growing over coming decades thanks to rising incomes and the falling cost of flying. Specifically, Sydney Airport is directly exposed to the surging number of Asian tourists visiting Australia. Capacity constraints have the potential to cap profits but so far this has not occurred and Sydney Airport also holds a Right of First Refusal over the proposed development of a second airport in Western Sydney.
Altium Limited (ASX: ALU)
Printed circuit board design software company Altium is one of Australia’s most successful software developers. The company is growing sales at above industry average rates and has its sights firmly set on market leadership. It is an attractive market too, as an increasing number of everyday products contain printed circuit boards to enable internet connectivity. As is typical of many software companies, switching costs for Altium’s customers are high as changing to another product is disruptive and requires retraining.
1300 Smiles Limited (ASX: ONT)
Dental chain 1300 Smiles must have the most shareholder friendly executive team in Australia. Combined remuneration for both the board of directors and senior management was just $0.2 million in 2016. Furthermore, there were no dilutive share awards either. Managing director Dr Daryl Holmes owns 60% of the company and so he makes much more from dividends than his salary. It is no surprise then that dividends have grown from 6.8 cents per share in 2007 to 22.5 cents today.
The above companies all have a track record of increasing dividends over time. But this company's dividend is almost the stuff of legends. Its reliable cash flows support a high payout ratio, and the company’s stash of franking credits are the cherry on the top of the dividend cake. Based on the last 12-months of dividends, shares are offering a fully-franked 6.5% yield, which grosses up to a whopping 9.3%, when those franking credits are included.
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Motley Fool contributor Matt Brazier owns shares of 1300SMILES Limited, Altium, and CSL Ltd. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.