I'm on the lookout for defensive ASX stocks to balance my portfolio.
In uncertain times it's particularly reassuring to know your holdings are resilient to the whims of the market.
Key features that I like in defensive stocks are consistent profits and signs of future earnings underpinned by solid long-term contracts.
Another key feature of a defensive stock that I'm fond of is a history of paying dividends to shareholders, especially if those dividends have been increasing over time.
Pro Medicus Ltd (ASX: PME) is one company that ticks some key boxes when it comes to defensive stocks.
In its latest half-year results, Pro Medicus announced total revenue was up 32.15% to a record of $100.79 million while underlying profit before tax was up 42.9% to $69.9 million.
The company also stated that shareholders would receive a fully franked interim dividend of 25 cents per share, up almost 40% on the prior corresponding period.
In fact, Pro Medicus has been consistently delivering dividends to shareholders for more than 20 years, steadily increasing over time.
The company also noted a 10.8% increase in Australian revenue, a 0.8% increase in European revenue, and a 34.6% increase in revenue coming from its North American operations.
The company offered some colour on its revenue increases and provided some insight into its future earnings:
"During the period Pro Medicus won key contracts with Trinity Health, Lurie Children's Hospital and Duly Health and Care. These contracts were for a combined minimum amount of $365 million spread over 7-10-year deals. In addition, the company renewed contracts with Mercy Health in the USA ($98 million, 8 years) and with a large Australian radiology practice ($32 million, 5 years). Additional modules were also added to existing contracts at both Duke Health (archive addition, $15 million, 5 years) and NYU Langone (archive addition, $24 million, 5 years)."
More recently, the company announced its wholly owned US subsidiary, Visage Imaging Inc., had signed a $40 million, 7-year contract with LucidHealth, a leading provider of radiology services in the US.
As such, Pro Medicus also has a strong list of contracts that are set to remain in play for the next 5 years or more.
Pro Medicus also has a healthy balance sheet with cash and other financial assets of $182.3 million and no debt.
Is Pro Medicus really a defensive stock?
While Pro Medicus does present some key attributes of a defensive stock, other signs open the door to counterarguments.
The bulk of the company's record revenue of $100.79 million came from its North American operations, which contributed $86.4 million.
With recent market volatility attributed to uncertainty resulting from the Trump Administration's trade policies, Pro Medicus' success in North America may concern some investors who could also view its high exposure to the US market as a vulnerability.
The Pro Medicus share price is down almost 20% over the past month.
As such, while Pro Medicus clearly displays some attributes of a defensive stock, the market says otherwise.
How can we say Pro Medicus is a defensive stock if it fails to do the main thing a defensive stock is expected to do: withstand market volatility?
Still, the recent dip could prove a buying opportunity.
Let's not forget that Pro Medicus shareholders have still enjoyed gains of more than 130% over the past year.
