Sonic Healthcare Limited (ASX: SHL) shares could represent an attractive dividend idea. The S&P/ASX 200 Index (ASX: XJO) blue-chip stock is one of the largest ASX healthcare shares.
It's not exactly a household name. But, it's one of the largest pathology businesses in the world, and it's the largest in Australia with a network of collection centres. It also has operations in the United States, Germany, the United Kingdom, Switzerland, Belgium and New Zealand.
Sonic Healthcare is also the second largest radiology provider in Australia with over 120 radiology centres. It also has clinical services in Australia, with over 150 medical centres and more than 2,000 general practitioners.
Let's get into the dividend elements of the business.
Sonic Healthcare dividend
The Sonic Healthcare FY22 final dividend increased by 9% to 60 cents per share. This brought the full-year dividend to $1 per share, which was a rise of 10%.
It said that its "progressive dividend strategy" was maintained.
The fact that it has a goal of paying "progressive" dividends to investors is encouraging for future growth. It was one of a limited number of ASX 200 blue-chip stocks that grew the dividend during the COVID-hit era of 2020.
Sonic Healthcare shares have paid out a bigger dividend every year since 2013.
The FY22 grossed-up dividend yield is currently 4.4%.
Future growth projected
The ASX healthcare share is expected to pay an annual dividend of $1.03 per share in FY23 according to Macquarie. This would represent 3% growth in FY23. If Sonic ends up paying that amount it would be a grossed-up dividend yield of 4.6%.
It could then pay an annual dividend per share of $1.06 in FY24. Between FY22 and FY24 this would be overall growth of 6%. By FY24, Sonic Healthcare shares could be paying a grossed-up dividend yield of 4.7%.
Underlying earnings could keep rising
The business has benefitted enormously from the amount of global COVID testing it has been involved in around the world.
In FY22, it generated $2.4 billion of COVID revenue. FY23 is unlikely to feature as much testing revenue. In the four months to October 2022, the company generated $280 million of COVID-19 revenue. Though monthly COVID revenue had dropped to $57.7 million in October 2022.
But, excluding COVID revenue, Sonic Healthcare saw base business revenue rise 6.7% year over year. It's this side of the company's revenue growth that could help fund growth of the dividend.
Scale and acquisitions
The bigger the ASX 200 blue-chip stock becomes, the better profit margins it can achieve. Acquisitions, such as the Canberra Imaging Group, have helped lock in higher earnings for the business.
Earnings before interest, tax, depreciation and amortisation (EBITDA) for the four months to October 2022 was 32.7% higher than the four months to October 2019. This denotes a 200 basis point increase in the EBITDA margin.
It recently announced another deal – it is going to buy 19.99% of Microba Pty Ltd (ASX: MAP). Sonic Healthcare is seeking to acquire options for an additional 5% equity position.
Management sees gut microbiome testing becoming a "key part of pathology over coming years".
