“Shielding Your Portfolio: Unveiling an ASX 200 Healthcare Share for Robust Defense”

This ASX 200 healthcare share could be a great way to defend against volatility

Investing in the stock market can be a rollercoaster ride, with many investors seeking ways to mitigate risks and protect their portfolios against volatility. One effective strategy is to invest in defensive shares, which are typically less susceptible to market fluctuations and provide stable returns. In this regard, the ASX 200 healthcare share Sonic Healthcare Ltd (ASX: SHL) emerges as a strong candidate for investors looking to safeguard their investments.

Why healthcare is a defensive sector

The healthcare sector is often considered one of the most defensive sectors in the market. This is because healthcare services are essential, and people do not choose when to get sick. Furthermore, healthcare is supported by both government funding, through programs like Medicare, and private health insurance. These factors provide a steady stream of revenue for healthcare companies, even during economic downturns.

Sonic Healthcare‘s defensive record

Sonic Healthcare is one of the largest pathology businesses in the Western world and has successfully built an impressive track record of resilient earnings and share price performance. The company’s core business is experiencing steady growth, and it has also expanded through strategic acquisitions.

Global diversification

One of Sonic Healthcare‘s key strengths is its global diversification. While some businesses are heavily reliant on the economic conditions of a single country, Sonic generates substantial revenue from multiple countries. In the first half of FY23, both the US and Australia generated over $1 billion in revenue, and other countries such as Germany, Switzerland, the UK, and Belgium also contributed significantly. This global presence helps Sonic weather any economic uncertainties in specific regions and maintain consistent earnings.

Organic growth and operating leverage

In addition to its acquisitions, Sonic Healthcare is experiencing organic growth in its base business. Excluding COVID testing revenue, the company’s base business saw a 6% YoY organic revenue growth in the first half of FY23. This growth is expected to continue, as Sonic has mentioned catch-up testing following COVID-19 delays, which could drive stronger revenue growth in the future. The company’s operating leverage is also playing a role in its profitability, with operating cash flow up 47% and net profit after tax (NPAT) up 50% compared to pre-COVID times. This combination of organic growth and operating leverage positions Sonic Healthcare well for future success.

Stable dividends

Sonic Healthcare is also known for its reliable dividends, which can provide stable and growing returns for investors. The company has a “progressive dividend policy” and has increased its dividend every year since 2013. According to Commsec, it is projected to pay an annual dividend per share of $1.06 in FY24, translating to a grossed-up dividend yield of 4.3%. While dividends may only be a small part of the overall return, they can play a crucial role in providing stability in a volatile market.

Conclusion

Sonic Healthcare emerges as a promising investment opportunity for investors seeking defensive shares to protect against volatility. Its global diversification, organic growth, and reliable dividends make it an attractive option for those looking for stability in their portfolios. However, it is important to conduct further research and analysis before making any investment decisions.

Disclaimer: The author of this article does not currently hold a position in Sonic Healthcare Ltd (ASX: SHL). This article is for informational purposes only and should not be taken as investment advice. Investors should conduct their own research and consider their financial situation before making any investment decisions.