Why this ASX 200 stock is a retiree's dream

I think this is a very healthy and resilient stock.

| More on:
Senior woman with caregiver in the garden

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sonic Healthcare Ltd (ASX: SHL) looks to me like a leading S&P/ASX 200 Index (ASX: XJO) stock to own in retirement.

The ASX healthcare share is a global pathology business with operations in Australia, the United States, Germany, the United Kingdom, Switzerland, New Zealand and Ireland.

I recently invested in Sonic shares for my own portfolio. Although I'm many years away from retirement, I think it would be a great pick for people in their golden years. Here are three key reasons why.

Defensive and growing

Sonic has shown over the decades that there is a continuing need for pathology healthcare services, whether in everyday life, during a pandemic or in tough economic times.

No one chooses when they'll get sick so I think the company can generate good profit whatever the conditions.

The ASX 200 stock is doing well at delivering underlying growth. In the recent FY24 first-half result, Sonic's base business revenue grew by 15%, with organic growth of 6%.

There are good tailwinds for the company's revenue growth – the population in its main markets (Australia, Germany, UK, and the US) keeps growing, which means more potential patients to potentially use healthcare services.

The Western world is also seeing ageing populations as people live longer, which could also mean utilising more healthcare services.

Appealing growth avenues

Sonic's core services have good growth prospects, but the company has also invested in other businesses that could unlock further expansion. I think company growth is attractive for retirees as well as younger Aussies because it can offset inflation and business stagnation.

Sonic has made "synergistic diagnostic technology investments" in companies that it says have "material future earnings potential." These include PathologyWatch, Harrison.ai/Franklin.ai, and Microba Life Sciences Ltd (ASX: MAP).

The ASX 200 stock believes digital pathology and AI are set to "transform anatomical pathology through step-change gains in efficiency, quality, capacity and workflow optimisation".

PathologyWatch is an end-to-end digital pathology platform with laboratory information systems, a digital pathology viewer and image storage and AI algorithms. Franklin.ai is a joint venture between Sonic's medical team and Franklin's AI team, with products to be deployed within Sonic and sold globally.

Sonic also owns a stake in Microba, which aims to create new diagnostic tools for understanding the gut microbiome.

Excellent dividend

Another key factor for retirees to like about this business is its growing dividend. The company has a stated "progressive dividend" policy and it has grown its dividend every year since 2013.

The franking level of its dividend has fluctuated widely in the past five years, so I'll discuss the yield excluding franking credits. Any future imputation is a bonus.

According to Commsec, Sonic is expected to pay a dividend yield of 4% in FY25.

It's handy to have passive income which has a good chance of growing in the following year.

Motley Fool contributor Tristan Harrison has positions in Sonic Healthcare. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

two doctors smile as they sit together at a desk looking at a patient's Xray.
Healthcare Shares

This ASX 200 healthcare stock just hit an all-time high: Is it too late to buy?

The valuation of this high-performer has soared.

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
Healthcare Shares

1 magnificent ASX stock down 10% to buy and hold forever

Analysts say this high-quality stock is a great option for investors right now.

Read more »

ventilator mask
Healthcare Shares

3 reasons ResMed shares 'are just too cheap!'

This stock could still produce healthy gains, according to one fund manager.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

2 ASX healthcare shares rocking higher on big news

This 'spray-on skin' company and cancer-fighting biotech have exciting news for shareholders today.

Read more »

Scientists working in the laboratory and examining results.
Healthcare Shares

Insider still buying Mesoblast shares despite 230% rise this year: Should you buy?

This high-flying share is still reporting insider buying. Should you buy too?

Read more »

A woman reclines in a comfortable chair while she donates blood holding a pumping toy in one hand and giving the thumbs up in the other as she is attached to a medical machine to collect her blood donation.
Healthcare Shares

Buy CSL shares for growing dividends and 'compelling long-term tailwinds'

CSL has increased both its interim and final dividend every year since 2021.

Read more »

a doctor in a white coat makes a heart shape with his hands and holds it over his chest where his heart is placed.
Healthcare Shares

Resmed share price higher despite CEO hitting sell on 14,683 shares

ResMed's CEO just sold $4.8 million worth of his own company's shares.

Read more »

Scientist looking at a laptop thinking about the share price performance.
Healthcare Shares

Why this high-flying ASX 200 healthcare stock just crashed 11%

Neuren Pharmaceuticals just dropped its 1Q FY24 report on DAYBUE sales.

Read more »