FTSE 100 incumbent Smith & Nephew (LSE:SN) was impacted negatively by the pandemic. I believe it is primed to reap the benefits of reopening and should bounce back. Here’s why I’d add the shares to my holdings and keep hold of them.
Smith & Nephew shares drop
Smith & Nephew is a medical technology business that supports the healthcare sector to help return patients back to health and mobility. With a presence in over 100 countries, Smith & Nephew operates via three core segments. These are orthopaedics, sports medicine and ENT, and advanced wound management.
So what’s the latest with Smith and Nephew shares? Well, as I write, the shares are trading for 1,300p. At this time last year, the shares were trading for 1,539p, which is a 15% decline over a 12-month period.
FTSE 100 stocks have risks
At current levels, Smith & Nephew shares could be deemed expensive. The shares currently trade on a price-to-earnings ratio of 27. The index average is closer to 15. If the business were to report less than pleasing results or reveal any negative news, the shares could be affected negatively.
Many of Smith & Nephew’s products are used in elective procedures. When the pandemic struck, fighting the virus was the primary concern of the healthcare sector. Many procedures were cancelled and Smith & Nephew’s performance was affected. There is a real risk of new variants and restrictions linked to the pandemic, in my opinion. This could once more affect the kinds of procedures that use Smith & Nephew’s products being put on the back burner.
The positives and my verdict
So what are the positives? Well, I’ll start with performance. Smith & Nephew has a good track record of consistent performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see revenue has reached £4.9bn for the three of the past four years, aside from 2020, which was impacted by the pandemic, when it recorded revenue of £4.5bn. Again, aside from 2020, profit increased year on year between 2018 and 2021.
Coming up to date, Smith & Nephew reported a favourable Q1 trading update at the end of April. It said that revenue was up by 3.3% compared to the same period last year. In addition to this, all segments had seen growth and established and emerging markets had also seen growth compared to Q1 2021.
SN shares would also boost my passive income stream as the company has a good record of dividend payments. The current dividend yield stands at 2.5%. This is below the FTSE 100 average yield of 3%-4% but I’m buoyed by the consistent record of payouts from Smith & Nephew. It has paid a consistent dividend since 1937! There aren’t many businesses that can attest to such a feat.
Finally, due to the issues during the height of the pandemic, I believe Smith & Nephew will benefit from pent up demand for elective procedures and its products. This should help boost performance and any returns.
I’d add Smith & Nephew shares to my holdings, thanks to its fantastic dividend record and recent performance growth.