The CSL Ltd (ASX:CSL) share price has fallen 0.7% since the start of 2024. Also in 2024, the Coles Group Ltd (ASX:COL) share price is 6.9% away from its 52-week high. This article explains why it could be worth popping CSL and COL shares on your watchlist.
CSL share price in focus
CSL is a global biotechnology company that develops and delivers innovative medicines that save lives, protect public health, and help people with life-threatening medical conditions live full lives.
The company is divided into three main business units: CSL Behring, CSL Seqirus and CSL Vifor. Behring, acquired in 2004, manufactures and distributes blood plasma products. Seqirus was formed by a rebranding of BioCSL and the acquired Novartis flu business (bought in 2015), and makes flu-related products and performs pandemic-related services for Governments. Finally, Vifor makes products for iron deficiency and nephrology (renal/kidney care).
CSL has developed a reputation with Australian investors over many decades as being a reliable company and a consistent dividend payer. Many consider an investment in CSL to be an indirect play on the continuing rise in healthcare costs.
Since we consider CSL Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY23, CSL Ltd had an ROIC of 11.80% and revenue has compounded at 12.8% in recent years. Anything over 10% ROIC is pretty strong for a mature-style business, since its cost of capital is likely below that level, so CSL Ltd crosses this hurdle.
COL shares
Coles is an Australian retailer providing customers with everyday products including fresh food, groceries, general merchandise, liquor, fuel and financial services. It was founded in 1914 in Victoria which it still calls its home base.
Coles was formerly owned by conglomerate Wesfarmers from 2007 until 2018, when it was spun-off and listed as a separate entity on the ASX under the ticker symbol ‘COL’. Coles’ earnings are dominated by the supermarkets side of the business, however, it partly or fully owns or operates adjacent businesses like flybuys, Liquorland, First Choice, Vintage Cellars, Coles Express and more.
While Coles is in a way the ‘little brother’ to Woolworths, it still controls a significant share of the Australian grocery market (about 28%). In its short time as its own listed entity, Coles has established itself as a handy and reliable dividend payer.
CSL share price valuation
One way to have a ‘speedy read’ of where the CSL share price is, is to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, CSL Ltd shares have a dividend yield of around 1.38%, compared to its 5-year average of 1.50%. Put simply, CSL shares are trading below their historical average dividend yield. Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing. In the case of CSL, last year’s dividend was greater than the 3-year average, so the dividend has been growing.
COL is offering a historical dividend yield of around 3.77%, which compares to its 5-year average of 3.76%. Last year’s dividend was greater than the 3-year average, so the dividend has been growing.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets. Both of these models would be a better way to value the COL share price.”)
