There aren’t many shares on the ASX that I’d be confident in recommending to most types of investors. Income investors want a higher yield than what the banks are offering, growth investors want to beat the market, retirees want solid blue chips. I think Ramsay Health Care Limited (ASX: RHC) could be the stock to satisfy all those different needs. Ramsay is one of the largest private hospital operators in the world, it has over 50 years operating hospitals and admits almost 3.5 million patients per annum. It has a large number of facilities and beds. It has 221…
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There aren’t many shares on the ASX that I’d be confident in recommending to most types of investors. Income investors want a higher yield than what the banks are offering, growth investors want to beat the market, retirees want solid blue chips.
I think Ramsay Health Care Limited (ASX: RHC) could be the stock to satisfy all those different needs.
Ramsay is one of the largest private hospital operators in the world, it has over 50 years operating hospitals and admits almost 3.5 million patients per annum.
It has a large number of facilities and beds. It has 221 hospitals, 25,000 hospital beds, 13 health care and treatment facilities, 1,150 operating theatres and 39 emergency departments.
The thing I like most about Ramsay’s portfolio is that it operates in six countries including Australia, France and the UK.
Why Ramsay could be good for income investors
You’ll be very lucky to find a savings account or term deposit offering more than 2.8% these days. The record-low interest rates from central banks is really hurting savers.
However, investors who think they need to move from a bank account offering 2.8% interest to a share offering a grossed-up yield of 8% are moving up the risk curve significantly.
Ramsay currently has a trailing yield of 2.76%. However, if Ramsay meets its guidance of earnings per share (EPS) growth of around 8% to 10% then Ramsay may grow the dividend by say 10%. This means the next year of dividend payments could amount to a dividend yield of around 3% today.
Another good thing about Ramsay’s dividend is that it only paid 134.5 cents out of Core EPS of 261.4 cents, this equates to a payout ratio of 51.4%. Having a low payout ratio means Ramsay is re-investing more for growth and has more room to increase the dividend if EPS doesn’t grow one year.
Why Ramsay could be good for growth investors
Ramsay has already proven its worth as a wonderful ‘growth’ investment over the last decade.
However, the past doesn’t matter any more, it’s the future that counts. As I mentioned earlier, Ramsay is predicting growth of 8% to 10% in FY18. This won’t be the end of the growth, I expect Ramsay will post many more years of high single digit EPS growth over the next decade.
The key reason why Ramsay could be a strong growth stock is that the Australian population is ageing. The number of baby boomers reaching 65 years old is rapidly increasing and will continue over the coming years. This will lead to the over-65 age bracket growing by 75% over the next 20 years.
Ramsay will be one of the largest beneficiaries from this growth because the over-65 bracket is the group most likely to visit the hospital.
The consistent growth each year should see Ramsay compound returns strongly for investors over the coming years.
Why Ramsay could be good for retirees
If I were a retiree the main thing I’d want from my shares is quality and safety. Safety definitely doesn’t just mean ‘big’. BHP Billiton Limited (ASX: BHP) and Telstra Corporation Ltd (ASX: TLS) have proven that big doesn’t mean the dividend is safe.
Ramsay has increased its dividend every year since 2000, that is a wonderful record only matched by Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which has grown its dividend since 2000 as well.
I think Ramsay is one of the safest shares on the ASX because it operates in the healthcare industry. Patients will spend what it takes to remain alive and healthy. Ramsay should be one of the most defensive shares out there because hospitals are always in demand. We don’t choose to get sick or injured, it happens no matter what the economic conditions are.
Ramsay is currently trading at 24x FY18’s estimated earnings, which I think is a very reasonable price for its quality, potential growth and defensive attributes. I’d be very happy to add Ramsay shares to my portfolio at the current price.
I'd also be very happy to add these three shares to my portfolio as well.
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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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.