The Motley Fool

One huge reason to own CSL shares

There can’t be many ASX listed blue-chip stocks in better shape than blood product company CSL Limited (ASX: CSL).

In the 2018 financial year, CSL increased reported sales revenue by 15%, invested US$700 million into research and development and paid out US$672 million in cash dividends to investors.

On their own, these are signs of a strong, cash-rich business. Together they represent something we should all be on the hunt for as investors: a sustainable competitive advantage.

A growing history of strong returns on equity

Businesses with sustainable competitive advantages can grow and compound at above-average returns for long periods and CSL is a perfect example.

In the 2018 financial year, CSL produced a monster return on equity (ROE) of 42%, completely blowing away the 6% average for U.S. healthcare product companies. And this wasn’t just a one-off. Below we can see how the company’s ROE has held up over the previous financial years:

CSL Limited (All USD) 2018 2017 2016 2015 2014
Net Income ($m) 1,729 1,337 1,242 1,379 1,307
Total equity ($m) 4,080 3,164 2,567 2,746 3,162
ROE 42% 42% 48% 50% 41%

Source: CSL Ltd 2018 Annual report

It’s revealing to see how consistent CSL has been in maintaining a high ROE, but there are other insights here too.

First, we can see the drop in both net income and equity between 2015 and 2016. This occurred as CSL began investing into its newly acquired Seqirus Influenza business, reducing net income and taking on more debt. Both points show that CSL was reinvesting for long-term growth which the business is starting to reap today.

We can also see a big increase in the company’s equity in 2018 which is almost entirely from retained earnings as the company’s value increased. Remember how CSL paid out US$672 million in dividends last year? Well with reported net income of US$1.73 billion, cash that wasn’t distributed to investors was being reinvested, lifting assets and thus shareholder equity.

Foolish Takeaway

Tracking metrics like return on equity over time help to monitor if a company is maintaining or growing its competitive advantage. In the case of CSL, the ongoing strong returns and growing equity base are a great reason to want to own the company today.

OUR #1 dividend pick to grow your wealth in 2019 is revealed for FREE here!

Our top dividend stock pick for 2019 currently boasts a 5.4% dividend yield (fully franked). I believe it’s a perfect fit for a well-diversified, income-focused portfolio.

Even better, this yield comes attached to an attractive and still-growing business which could keep expanding throughout Australia and New Zealand for years to come. With disciplined management, and a long track record of building wealth for shareholders, this company is a serious candidate for any income-minded investor’s portfolio.

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Regan Pearson has no position in any of the stocks mentioned.

You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia has no position in any of the stocks mentioned. 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 Scott Phillips.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!