Investing in retirement is all about balance. Naturally, you want stability and dividend income, but at the same time, you also want an element of long-term growth in order to protect yourself from the wealth-destroying effects of inflation.
Today, I’m profiling a FTSE 100 healthcare stock that I believe could make an excellent retirement stock. The company offers a degree of stability and has an outstanding dividend track record, yet also offers a compelling long-term growth story going forward.
Profit from the world’s ageing population
Smith & Nephew (LSE: SN) is a leading joint replacement specialist with operations all over the world, including emerging markets. To my mind, the stock looks to be an excellent way to capitalise on one of the biggest investment themes across the globe today – the world’s ageing population. It’s no secret that as we age, our bodies break down. In the US alone, almost 27m people suffer from wear-and-tear arthritis. With the global population continuing to age, demand for the group’s knee and hip implants should continue to grow.
The £11.6bn market cap healthcare company has released half-year results today, and the numbers look solid, in my view. For the half-year, revenue increased 4% to $2,440m, which consisted of underlying revenue growth of 1% and a 3% FX tailwind, with the group stating that for the full year, it expects underlying revenue growth to be in the range of 2%-3%. Revenue growth from the emerging markets was a key highlight, rising an impressive 11% for the half year. Adjusted earnings per share climbed 2% to 43.7 cents, reflecting improved trading conditions, while an interim dividend of 14 cents was declared, up from 12.3 cents last year, signalling confidence from management.
New CEO Namal Nawana said: “In my first few weeks at Smith & Nephew I have reviewed our businesses and operations and validated that we have an excellent product portfolio with numerous best-in-class medical technologies. We are now focused on energising and organising the business to accelerate growth.”
Valuation and dividend yield
Investors are clearly happy with the results, as the shares have risen by around 3% this morning. Yet despite today’s share price rise, the stock still looks reasonably valued, in my opinion, trading on a forward P/E ratio of 18.9. That may not be a bargain valuation, yet for a company with such desirable attributes, I think it’s a fair price to pay for a slice of the business.
It’s worth noting that Smith & Nephew is one of the FTSE 100’s few dividend ‘aristocrats,’ having paid a dividend on its ordinary shares every year since 1937, which is an outstanding achievement. The yield is not super high, at 2%, but dividend coverage is very solid, with earnings expected to cover this year’s dividend more than 2.5 times, indicating that the payout is secure.
Overall, I hold Smith & Nephew in high regard. I think the stock could make an excellent long-term buy-and-hold investment.
Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.