Shares in private health insurance businesses such as Medibank Private Ltd (ASX: MPL) and NIB Holdings Ltd (ASX: NHF) are popular with institutional and retail investors due to their defensive revenue streams and booked in annual lifts in premiums.
The regulation of the private healthcare sector is also a double edged sword as while it keeps a lid on fixed premium growth it also means well run insurers should be able to steadily lift profits and dividends assuming they manage claims and net insurance margins properly.
NIB Holdings for example has been able to increase dividends per share from 14.75 cents in fiscal 2016 to 20 cents per share in fiscal 2018 with it on course to beast that in fiscal 2020.
Only growing earnings pay growing dividends and the stock has doubled over the past 5 years in response to its strong track record of profit growth.
For conservative investors then it looks a sound option, with the key to good returns being careful not to overpay for shares that can get ahead of themselves.
On March 28 2019 Goldman Sachs upgraded its rating on the stock from 'sell' to 'neutral' after its valuation fell significantly from highs around $6.50 in September 2018 to $5.23 on March 27, 2019.
Goldmans' 12-month price target is $5.48 which is almost bang on today's price of $5.51 to suggest today's investors are getting an ok price if Goldmans is on the money.
