Owning Medibank Private Ltd (ASX: MPL) shares could mean getting a large and growing dividend. The ASX healthcare share is a leading private health insurance provider. Its scale gives it operating leverage and the ability to make stronger profits than rivals and to pay pleasing dividends.
Medibank has a few different divisions, though it's best known for its Medibank and ahm brands.
The company has an impressive dividend record. Since it started paying a dividend in 2015, it has grown its annual payout every year apart from FY20, which was impacted by the COVID-19 pandemic. There may be more good dividends on the horizon.
Strong dividends expected
Using the Commsec projection, Medibank shareholders are forecast to receive an annual dividend per share of 15.8 cents in FY24. This would be a cash yield of 4.1% and a grossed-up dividend yield of 5.9%.
The annual dividend per share could then increase to 16.9 cents per share, which would be a year-over-year rise of 7%. If it pays that amount, the cash yield would be 4.4%, and the grossed-up dividend yield would be 6.3%.
Why is the passive income so good?
There are two things that directly affect the dividend yield of any business. There's the private/earnings (P/E) ratio – the multiple of earnings it trades at – and the dividend payout ratio.
In FY24, the Commsec numbers suggest the dividend payout ratio could be 80.6%, and the FY25 dividend payout ratio could be 80.9%. These are quite generous payouts but still leave about a fifth of the profit made within the business for re-investment and/or improving the balance sheet.
The Medibank share price is trading at under 20x FY24's estimated earnings, and it's trading at 18x FY25's estimated earnings, according to the forecasts on Commsec.
Can the Medibank dividends keep growing?
The ASX healthcare share can grow its profit in a number of different ways.
It's looking to reduce its operating expenditure where it can, which can help grow its profit margins. The business can keep growing its number of policyholders, helped by ageing tailwinds and population growth.
Medibank could also decide to keep diversifying its business by expanding into new areas organically or with acquisitions.
While I'm not expecting rocketing growth, I think the company can keep delivering dividend growth, particularly if policyholder numbers keep increasing.
