Sonic Healthcare Ltd (ASX: SHL) looks to me like a leading S&P/ASX 200 Index (ASX: XJO) stock to own in retirement.
The ASX healthcare share is a global pathology business with operations in Australia, the United States, Germany, the United Kingdom, Switzerland, New Zealand and Ireland.
I recently invested in Sonic shares for my own portfolio. Although I'm many years away from retirement, I think it would be a great pick for people in their golden years. Here are three key reasons why.
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Defensive and growing
Sonic has shown over the decades that there is a continuing need for pathology healthcare services, whether in everyday life, during a pandemic or in tough economic times.
No one chooses when they'll get sick so I think the company can generate good profit whatever the conditions.
The ASX 200 stock is doing well at delivering underlying growth. In the recent FY24 first-half result, Sonic's base business revenue grew by 15%, with organic growth of 6%.
There are good tailwinds for the company's revenue growth – the population in its main markets (Australia, Germany, UK, and the US) keeps growing, which means more potential patients to potentially use healthcare services.
The Western world is also seeing ageing populations as people live longer, which could also mean utilising more healthcare services.
Appealing growth avenues
Sonic's core services have good growth prospects, but the company has also invested in other businesses that could unlock further expansion. I think company growth is attractive for retirees as well as younger Aussies because it can offset inflation and business stagnation.
Sonic has made "synergistic diagnostic technology investments" in companies that it says have "material future earnings potential." These include PathologyWatch, Harrison.ai/Franklin.ai, and Microba Life Sciences Ltd (ASX: MAP).
The ASX 200 stock believes digital pathology and AI are set to "transform anatomical pathology through step-change gains in efficiency, quality, capacity and workflow optimisation".
PathologyWatch is an end-to-end digital pathology platform with laboratory information systems, a digital pathology viewer and image storage and AI algorithms. Franklin.ai is a joint venture between Sonic's medical team and Franklin's AI team, with products to be deployed within Sonic and sold globally.
Sonic also owns a stake in Microba, which aims to create new diagnostic tools for understanding the gut microbiome.
Excellent dividend
Another key factor for retirees to like about this business is its growing dividend. The company has a stated "progressive dividend" policy and it has grown its dividend every year since 2013.
The franking level of its dividend has fluctuated widely in the past five years, so I'll discuss the yield excluding franking credits. Any future imputation is a bonus.
According to Commsec, Sonic is expected to pay a dividend yield of 4% in FY25.
It's handy to have passive income which has a good chance of growing in the following year.
