Share Market Tips- 6 Stocks to Boost Your Portfolio

This week as part of our regular share market tips, I’ve decided that the Healthcare sector would be an interesting subject to discuss, particularly in relation to the dividend yields that the bigger companies in the sector are paying.

Whilst you might expect the biggest stocks in this sector to be paying dividends at or above the market average, the reality is actually the opposite. These companies are currently paying below this level. Let’s take a look at what is going on by considering some of the bigger stocks in the sector and their current yields.

I have extracted fundamental data for 6 Healthcare stocks: CSL, RHC, SHL, COH, PRY and RMD.

CSL Limited (CSL)

CSL Limited is the heavy-weight in the sector, market capitalisation is around $33.5 bn, PE ratio is around 24, which is high given the rest of the market average is close to 16. The current yield for CSL is 1.7% unfranked. The current earnings forecast is low to mid double digits at 14%, on the back on 9% for the prior year.

So far shareholders, including the big institutions, are not putting much pressure on CSL to lift the dividend yield. However, I believe this is likely to change in 2015. That said, while the major institutions are making announcements rerating the share price higher and buyers respond by pushing the share price higher, then what incentive is there? This is what occurred recently after CSL reported to the market and Deutsche Bank found cause to raise their target for the share price to around $76.

Ramsay Health Care Limited (RHC)

Ramsay Health Care has a PE of around 30, well above the sector average, the current yield is only 1.6% fully franked. Currently, RHC’s two year forecast is high double digits at around 19%, on the back of 17% for the prior year. The company is due to report to the market on 28 August.

Sonic Healthcare Limited (SHL)

Sonic Healthcare has a market capitalisation of around $7.0 bn and a PE of around 18, which is slightly below the sector average of around 21. The company’s yield is currently around 3.6% and is 45% franked. This is probably one of the better stocks in terms of the dividend. The company’s two year average forecast is currently around 12%, on the back of 4.5% in the prior year.

The stock recently traded through the all-time high price in Nov 07 at $18.08 and is still hovering at around this level. This is a significant level for SHL and is important to watch if you are holding the stock. SHL reports to the market today.

Cochlear Limited (COH)

Cochlear has a market capitalisation of around $4.0 bn and a PE of around 39, which indicates that the stock is currently overvalued from a fundamental perspective. The company’s yield is currently around 3.7% and is 20% franked. The company’s two year average forecast is currently around 36%, however, it is important to consider that this is on the back on negative 30% for the prior year.

Primary Health Care Limited (PRY)

PRY has a market capitalisation of around $2.3 bn and a PE of around 14, which indicates that the stock is currently well below the other stocks in the top 100. The company’s yield is currently around 4.4% and is fully franked. The company’s two year average forecast is currently around 9.6%, on the back of 7.9% in the prior year.

Resmed Inc (RMD)

RMD is at the lower end of the PE at around 21. RMD’s yield is currently around 2.1% unfranked. The company’s two year average forecast is currently around 12%, on the back of positive 14% in the prior year.

I believe it is important to have some exposure to the sector and I do see further upside for Healthcare in the short term, however, without a significant rerating on earnings next year, I believe that for some of these companies may struggle to justify higher prices beyond short term targets.  In the next week or so I will give my technical view on these stocks.

Janine Cox

Wealth Within

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