This S&P/ASX 200 Index (ASX: XJO) healthcare share could be a very effective choice for passive income. I'm talking about Sonic Healthcare Ltd (ASX: SHL) shares.
The laboratory services, pathology, and radiology provider has been very effective at growing its scale, earnings, and dividend over the last two decades.
At one time, it did not have the international reach that it does now. The ASX healthcare share is now a global business with a market capitalisation that's approaching $16 billion. It operates in a number of countries including Australia, New Zealand, Germany, the US, and the UK.
And its business could continue to grow for a very long time thanks to its exposure to tailwinds like ageing demographics and new technology for pathology.
Higher earnings have helped the Sonic Healthcare share price over the last five years — it's up by around 40%. Sonic Healthcare got a pandemic-era boost as it carried out millions of COVID tests. But now the focus is back on its core business.
How to make $200 of weekly income from Sonic Healthcare shares
There are no ASX 200 stocks that pay weekly. I think it's better to think of a company's dividend as an annual income that can be divided by 52.
To make $200 of weekly income, we need to generate $10,400 of annual income.
In FY23, according to Commsec, Sonic Healthcare is forecast to pay an annual dividend per share of $1.01, not including the effect of franking credits. That's a cash dividend yield of 3%.
If we owned 10,298 Sonic Healthcare shares, then we'd receive $10,400 of annual passive income in cash dividends. The franking credits would be a bonus on top of that.
The current Commsec forecasts for Sonic Healthcare suggest that the dividend could be increased to $1.06 per share in FY24. At the current Sonic Healthcare share price, that suggests the ASX stock could pay an FY24 cash dividend yield of 3.2%.
There could be another dividend increase in FY25. Commsec numbers currently predict a dividend per share of $1.115. That's a possible forward cash dividend yield of 3.35%.
If we think about FY25's payout, investors would only need to own 9,327 Sonic Healthcare shares to get $10,400 of annual dividends.
How is the ASX 200 stock performing?
The latest update that investors have seen was the company's FY23 first-half update.
While the drop-off in COVID testing was the cause of total revenue falling 14% and net profit after tax (NPAT) sinking 54%, the company has made a lot of progress since the first half of FY20 – a time when COVID-19 was not impacting Sonic's key markets.
Compared to HY20, base business revenue was up 11% (with organic revenue growth of 8%) and total revenue was up 22% thanks to residual COVID testing in FY23. Earnings before interest, tax, depreciation and amortisation (EBITDA) was up 33% and net profit was up 50%.
The HY23 result saw Sonic Healthcare increase its interim dividend by 5% as it continued its progressive dividend policy for shareholders.
Sonic Healthcare continues to win contracts. It's also considering "several acquisition opportunities, with a rich pipeline" and it is benefiting from post-pandemic catch-up testing.
