Is the Medibank Private Limited (ASX: MPL) share price a buy for the 7% dividend yield, which includes franking credits?
Medibank is the largest listed private health insurer in Australia with its Medibank and AHM brands. It has been operating for over 40 years and has around 1.8 million policyholders & 3.7 million customers. The company is headquartered in Melbourne.
Is The Medibank Share Price A Buy For Income?
Medibank has one of the biggest dividend yields out of the blue chips, other than the banks. Its yield is 4.8% excluding franking credits and 6.9% including the effect of franking credits.
Income is in high demand at the moment because of the very low interest rates that banks are offering from bank savings accounts.
Medibank has increased its dividend each year since it listed in 2014, which is a fairly impressive streak. In Medibank’s latest half year result the private health insurer unveiled operating profit increased by 2.4% to $293 million and a dividend that was 3.6% higher than the year before.
One of the most attractive things to the idea of owning Medibank shares for the dividend is that the underlying demand for healthcare continues throughout the year and indeed over multi-year periods. Healthcare is one of the industries you can point to that has a good non-cyclical tailwind due to the ageing Australian population.
However, demand for private health insurance premiums isn’t looking so great at the moment due to the high and rising cost of premiums. Households are under a lot of budgetary pressures at the moment with little wage growth. Plus, Australia has one of the best public health systems in the world.
Things are looking even dicier at the moment because Medibank, NIB Holdings Limited (ASX: NHF) and others are being limited to very low average premium increases.
Medibank might be good for a slowly-growing dividend that is less affected by a recession, but I wouldn’t want to buy shares because of the prospect of limited total returns. I would rather buy one of the leading ASX shares that are outlined in the free report below.
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