Ever since I worked in a business dealing with its products, I’ve liked Smith & Nephew (LSE: SN). The FTSE 100 firm makes replacement joints, with most of its revenues coming from its orthopaedics products. It’s a business that’s led to long-term growth plus dividends.
Smith & Nephew is in a highly regulated industry, and has a range of products that are very well regarded by doctors and patients alike.
To me, that’s a significant defensive moat. But, probably because of it, the shares can sometimes get a bit pricey. Not this year, though, as the Covid-19 slump has pushed the price down 15{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}. It’s still ahead of the FTSE 100, mind, with the index down 21{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}. The dividend provides a relatively low yield, but it’s rising steadily.
A trading update Thursday revealed a 4{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} revenue drop in the third quarter. That’s a big improvement over the 29.3{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} fall for the second quarter, and most of the improvement is in orthopaedics. That’s not surprising, as elective surgery pretty much came to a halt round the world with non-essential medical procedures put on hold.
Set for a 2021 comeback?
We’ll get full third-quarter details on 29 October, but for now I think the latest news bodes well. Forecasts suggest a small fall back in the dividend this year. But a rebound in forecasts for 2021 suggest we’ll be back to rising annual income. Yields are relatively low at around 2{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}. But a progressive dividend can be far more valuable in the long run than a short-term higher yield.
We’re looking at a forecast 2021 price-to-earnings multiple of around 17.5. I think that’s good value for a FTSE 100 stock with long-term growth potential, and paying progressive dividends.
A FTSE 250 dividend
A real estate investment trust (REIT) might not sound like a tempting investment in 2020. But Primary Health Properties (LSE: PHP), in the FTSE 250, is a bit different. The company invests in healthcare properties, primarily GP surgeries, and lets them on long-term leases.
There’s a lot of defensiveness there. Even if commercial real estate in general is under the cosh, demand for healthcare properties is likely to remain solid. And with increasingly ageing populations in the UK and Ireland, I can only see the demand rising.
The Primary Health Properties share price has been one of the most resilient in the FTSE 250 in the face of the pandemic. It dipped relatively lightly in the early lockdown days. And as we enter October, it’s down just 6.5{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} year-to-date.
What stock market crash?
Analysts don’t really expect any impact on Primary Health’s profits for the full year, which puts it in an enviable position. The dividend has ben rising nicely over the past few years too, and forecasts have that continuing this year and next.
On Thursday, the company confirmed its next quarterly dividend, of 1.475p per share. That’s bang in line with the forecast 5.9p for the full year, which would yield 3.9{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} on the current share price. I rate it as one of the most reliable dividends in the FTSE 250, and it’s from a stock with long-term growth potential too.
I see Primary Health Properties as a very attractive long-term investment, for a goal of providing steady income in retirement.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Primary Health Properties. 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.
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