Buying ASX dividend shares could be the right call in a falling interest rate environment, in my opinion.
Every time the Reserve Bank of Australia (RBA) reduces the cash rate, it reduces the attractiveness of term deposits because banks will likely reduce what they pay to savers. More rate cuts are predicted for the next 12 months.
It could be a good idea to invest while some ASX dividend shares are still priced attractively. With that in mind, I'll highlight two of the most defensive businesses on the ASX, in my view.
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Propel Funeral Partners Ltd (ASX: PFP)
The saying goes that there are only two things certain in life: death and taxes. Propel is the second-largest funeral operator in Australia and New Zealand. Considering the certain number of funerals each year, the company's earnings are very defensive.
Its profits and dividends aren't guaranteed like a term deposit, but I'd say it's still very defensive.
In the FY25 first-half result, the ASX dividend share reported that funeral volumes increased 8.6% year over year, helping revenue increase 12% to $115.2 million. It also benefited from a 2.6% increase in average revenue per funeral, in line with inflation.
Due to Australia's growing and ageing population, as morbid as it is, the country's future death volume is expected to rise at a compound annual growth rate (CAGR) of 2.6% between 2025 and 2030 and then rise at a CAGR of 2.9% between 2031 and 2040, according to Propel.
In my view, growing funeral volumes, rising revenue per funeral, and higher profit margins could allow the company's bottom line to expand significantly in the coming years. In the HY25 result alone, operating net profit after tax (NPAT) increased by 21.1% to $12.2 million (much faster than the revenue growth).
It currently has a trailing grossed-up dividend yield of 4.5%, including franking credits.
Sonic Healthcare Ltd (ASX: SHL)
Sonic Healthcare is one of the world's largest multinational pathology businesses. The ASX healthcare share has a presence in Australia, the USA, Germany, Switzerland, the UK, Belgium, and New Zealand.
Healthcare services usually have very consistent demand; people don't choose when they become sick based on what's happening with the economy.
Due to ageing and growing populations where the business is based, it has solid organic growth tailwinds, in my opinion. The business is also working on initiatives to improve and expand its pathology offering, including microbiome testing and AI.
As the ASX dividend share grows larger, it's demonstrating pleasing operating leverage, where profit rises faster than revenue. In the HY25 report, revenue increased 8% to $4.67 billion, operating profit (EBITDA) increased 12% to $827 million, and earnings per share (EPS) grew 15% to 49.2 cents.
I think there is plenty of scope for the business to continue growing revenue and profit in the coming years.
On the dividend side of things, it has impressively grown its payout most years (with no cuts) over the last three decades. It currently has a trailing dividend yield of 4%.
