CSL Limited (ASX: CSL) shares have been one of the stronger performers over the past five years in the S&P/ASX 200 Index (ASX: XJO), rising by around 70%. But, can the ASX healthcare share generate attractive dividend income for investors?
The business has been paying dividends to investors for a number of years, with strong dividend growth.
In 2010 the business paid 80 cents per share for the whole financial year. In 2022 the annual dividend was more than $3 per share.
But, while the dividend growth has been good, the CSL share price growth has been so strong that it has pushed down the CSL dividend yield.
Dividend breakdown
At the current CSL share price, the ASX biotech share has a trailing dividend yield (excluding franking credits) of around 1.2%.
Even before interest rates rose, that would count as a low dividend yield. So, investors are going to need to apply a good amount of money to achieve the target.
CSL shares don't pay a dividend every month – they pay every six months. So, I think it's better to think of the $300 monthly target as an annual goal of $3,600.
To generate a $3,600 annual income with a 1.2% dividend yield would require a $300,000 investment.
However, there is potentially a way where less money would be needed. I'm referring to that strong dividend growth, which is predicted to continue over the next few years.
According to Commsec, CSL is predicted to pay an annual dividend per share of $4.72 in FY25. That's 34% higher than what the FY23 dividend is projected to be.
This means the FY25 dividend yield is expected to be 1.7% at the current CSL share price.
At that yield, investors would need to invest $212,000 in CSL shares for the target. While that's substantially less than $300,000, it's certainly still a large commitment.
Why is it such a large investment?
The problem is that CSL shares have a high price/earnings (P/E) ratio. According to Commsec, it's valued at 34 times FY23's estimated earnings.
It also has a fairly low dividend payout ratio, meaning that it doesn't pay out much of its profit each year.
The combination of those factors means that CSL has a low dividend yield.
With that in mind, I wouldn't invest in CSL with dividend income in mind. It's much more about whether the company's profit, growth and impressive research and development pipeline are good enough, which is a different question.
