Owners of CSL Ltd (ASX: CSL) shares have benefited from enormous capital growth over the past decade, powered by its excellent profit growth in that time. This profit generation is enabling larger and larger passive income payouts.
I like dividends because they allow investors to benefit from growth in the value of the business without having to sell shares to access that value.
CSL is one of the biggest companies on the ASX, with a market capitalisation of $135 billion. While it is a massive business, can it provide the same sort of dividend income as National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) or Rio Tinto Ltd (ASX: RIO)?
Let's look at how much passive income a $10,000 investment could generate with CSL shares.
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Dividend potential of CSL shares
Dividends are paid for by the profit a company makes.
CSL's board decided to declare an FY23 final dividend of US$1.29 per share and a full-year dividend of US2.36 per share. Converted into Australian dollars, the total full-year dividend amounted to approximately A$3.59 per share, an increase of 13%. This came after the company generated net profit after tax (NPAT) of $2.19 billion in FY23.
The passive income growth continued in the FY24 first-half result, with the interim payout of US$1.19 per share. In Australian dollar terms, the half-year dividend was increased 12% to A$1.81.
The last two dividends paid by CSL amount to US$2.48 per share, or A$3.72 at the current exchange rate. That translates into a dividend yield of just 1.3%.
$10,000 investment
If I had $10,000 to invest in the ASX healthcare giant, I'd be able to buy 35 CSL shares.
Assuming CSL paid the same dividends over the next 12 months as the last 12 months, a shareholder would receive $130 of cash if they owned 35 CSL shares.
If its profit continues climbing, the company may be able to significantly increase its passive income in future financial years.
The broker UBS has forecast the company's dividend per share can increase to US$3.80 per share by FY28. If CSL did pay that amount, it would translate into a dividend yield of 2%, or around $200 in dollar terms.
While the prediction implies the CSL dividend could grow by more than 50% over the next four years, the dividend yield is still expected to be small by FY28.
CSL share price snapshot
Over the past year, the CSL share price has fallen more than 8%. According to UBS' profit projection, it's now trading at 30x FY24's estimated earnings.
Dividends may not be the most compelling reason to look at CSL shares, but its recovery from COVID-19 impacts and the product development pipeline could be more intriguing.
