Cochlear Stock And 2 Australian Dividend Shares For Higher Rate Markets

With Fed officials openly discussing the possibility of further rate hikes and markets pricing in a low 2.1% chance of a sizable cut, many income investors are rethinking how dependable their dividend stocks really are. Higher-for-longer rates and inflation around 2.8% to 3.0% put more pressure on balance sheets and cash flows, which can matter a lot for regular payouts. This article looks at 3 stocks from a Defensive Dividend Stocks screener that are closely tied to this backdrop, and explains why some investors might lean toward them or choose to stay on the sidelines.

Ansell (ASX:ANN)

Overview: Ansell is a global supplier of hand and body protection products, making medical gloves and protective garments for healthcare settings as well as industrial gloves and clothing for sectors such as automotive, chemicals, construction and mining across more than 100 countries.

Operations: Ansell generates about US$1.1b from Healthcare and US$909.1m from Industrial products, with revenue concentrated in North America (US$934.3m) and Europe, the Middle East and Africa (US$625m), and smaller contributions from Australia and the rest of Asia Pacific and Latin America.

Market Cap: A$4.40b

Ansell can appeal to dividend focused investors who want a business tied to everyday healthcare and safety needs rather than highly cyclical spending. The company operates in a large global PPE market, holds strong positions in both surgical and industrial gloves, and has been working on margin improvement programs that are already reflected in its higher gross margin. At the same time, earnings quality has been affected by a sizeable one off loss of A$75.2m, profitability and ROE are still modest, and all liabilities currently come from external borrowing, which raises funding risk. In an environment where higher interest rates reward dependable cash generators, that mix of resilience, valuation appeal and balance sheet questions may make Ansell a candidate for closer consideration.

Ansell looks like a steady cash earner in essential protection gear, yet that A$75.2m one off loss and fully debt funded liabilities leave a big question mark over resilience, which the Ansell financial health report.

Rivco Australia (ASX:RIV)

Overview: Rivco Australia focuses on providing water supply solutions to Australian irrigators and farmers, acquiring and managing permanent water entitlements and offering temporary water allocations that help customers match their water use to changing seasonal needs.

Operations: Rivco Australia generates around A$44.5m from Permanent Water and A$7.5m from Temporary Water, with essentially all of its A$52.1m of revenue earned in Australia.

Market Cap: A$219.8m

Rivco Australia offers something different for dividend oriented investors, with earnings tied to water entitlements that many see as relatively defensive when interest rates stay higher for longer. The stock trades on a P/E below both the Australian market and global water utilities. However, the current A$1.39 price sits well above one DCF estimate of future cash flows, and analysts expect both revenue and earnings to decline sharply from recent strong growth. Investors may note the combination of high margins and “high quality” earnings on one hand, and 100% external borrowing and low forecast ROE on the other. Overall, Rivco Australia appears to be a high yield style water play that may warrant careful scrutiny rather than blind confidence.

Rivco Australia’s rich margins and “high quality” earnings sit beside a P/E below water peers and a DCF flag on A$1.39. As a result, the full story may hinge on the 2 key rewards and 1 important major warning sign

Cochlear (ASX:COH)

Overview: Cochlear provides implantable hearing solutions for children and adults, including cochlear implant systems, sound processor upgrades, bone conduction systems and a range of accessories that help people with moderate to profound hearing loss.

Operations: Cochlear generates about A$2.3b from implantable hearing devices, with revenue of roughly A$1.2b from the Americas, A$801.2m from EMEA and A$407.6m from Asia Pacific.

Market Cap: A$7.8b

Cochlear stands out in a higher rate world because it sits in a defensive corner of healthcare, selling specialist devices that are often viewed as essential rather than optional. It still offers exposure to product upgrades, such as the recently cleared Osia 3 sound processor. Earnings growth is forecast at 7.74% a year, and the stock trades below one DCF estimate of future cash flows, which some investors see as a margin of safety. At the same time, dividends are not well covered by free cash flow and margins have come under pressure. The key question is whether Cochlear’s product leadership and global franchise can more than compensate for those cash and profitability strains.

Cochlear’s essential hearing tech and a stock price sitting below one DCF estimate of future cash flows suggest investors may be missing something. See how the growth story lines up with the risks in the analyst forecasts for Cochlear

The three dividend stocks covered here are just a starting sample from a much broader income universe. The full Defensive Dividend Stocks screener surfaces 18 more companies that pair consistent dividends with their own detailed narratives. Use Simply Wall St to identify and analyze the specific catalysts, balance sheet traits and dividend stories that matter most to you so you can focus on the highest conviction ideas for your portfolio.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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