Medibank Private Ltd (ASX: MPL) is the biggest business in Australia's private health insurance space, and the ASX healthcare share is building a record of paying attractive dividends.
Some ASX companies in the healthcare sector, such as CSL Ltd (ASX: CSL) and ResMed Inc (ASX: RMD), focus on research and provide services to help patients. Others, such as Sonic Healthcare Ltd (ASX: SHL), Medibank, and NIB Holdings Limited (ASX: NHF), provide healthcare-related services to the general population.
I think it's possible for ASX healthcare shares to provide an attractive dividend because of the largely consistent (and hopefully growing) demand they experience.
However, many trade at a relatively high price/earnings (P/E) ratio because the market prices them for their expected growth. This has the unfortunate impact of a lower dividend yield.
Here's why Medibank stands out to me.
Medibank's pleasing dividend yield
The private health insurer recently reported its FY24 result.
That report saw the Medibank board of directors grow the annual payout by 13.7% to 16.6 cents per share. At the current Medibank share price, that translates into a grossed-up dividend yield of 6% for FY24.
It's not the biggest yield on the ASX, but it's comfortably more than what someone can gain from a term deposit with one of the big ASX bank shares.
Looking at the forecasts on Commsec for FY25, Sonic Healthcare is predicted to pay a dividend yield of 3.9%, CSL a yield of 1.4%, and ResMed a yield of 1%. In contrast, Medibank is predicted to pay a fully franked dividend yield of 4.4% and a grossed-up dividend yield of 6.2% for FY25.
Ongoing growth for the ASX healthcare share
Medibank has grown its annual dividend each year since FY21. Indeed, except for the COVID-hit year of FY20, it has seen dividend growth every year since it listed approximately a decade ago.
A key part of the company's profit and dividend growth has been the policyholder growth, which has added more scale to the business.
In FY24, Medibank reported it added 14,400 net resident policyholders (0.7% growth) and it added 69,000 net non-resident policy unit growth (25.1% growth).
That growth helped revenue from external customers rise by 4.7%, group operating profit increased by 7.9% and underlying net profit after tax (NPAT) increased by 14.1%.
However, Medibank expects "moderating" industry growth in FY25 compared to FY24, while claims per policy could grow around 2.7%. Non-resident health insurance customer numbers are expected to see "solid policy unit growth" in FY25.
The Medibank Health division is targeting average organic profit growth of at least 15% between FY24 and FY26. It also aims to invest between $150 million and $250 million in acquisitions during that period.
Overall, it seems the ASX healthcare share is likely to keep growing underlying profit in FY25 and this could help further dividend growth, in my view.
