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2 ASX shares I can’t ignore: WOW and CSL

The Woolworths Group Ltd (ASX:WOW) share price is down 7.6% since the start of 2024. Meanwhile, the CSL Ltd (ASX:CSL) The share price is 12% off its 52-week high.

WOW stock price

Founded in 1924, Woolworths is a retailer in Australia and New Zealand with more than 3,000 stores and more than 100,000 employees. It is currently Australia’s largest company in terms of revenue and market share.

Woolworths’ main businesses include supermarkets (under the Woolworths brand in Australia and Countdown in New Zealand), discount department store retailing under the Big W brand, and business-to-business (B2B) brands such as PFD. Overwhelmingly, the 35%+ share of Australian supermarkets is the crown jewel.

Woolworths is a very popular choice for many ASX investors looking for dividend income. It consistently pays a completely fair dividend, typically at a yield of over 3%, and offers a very defensive profit stream. Competitive advantage is probably best summarized as scale (distribution, low costs, etc.) and proximity (most consumers still shop based on distance to the grocery store).

As we view Woolworths Group Ltd as a blue chip stock or a mature company, we like to look at things like return on capital employed (ROIC) and revenue growth as signs of sustainability. In FY23, Woolworths Group Ltd had an ROIC of 13.20% and sales have increased to 6.6% in recent years. Anything above 10% ROIC is quite good for a mature business as the cost of capital is likely below that level, so Woolworths Group Ltd exceeds this hurdle.

CSL stock price

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, produces and distributes blood plasma products. Seqirus was formed through a rebrand of BioCSL and the acquired Novartis flu business (purchased in 2015) makes flu-related products and performs pandemic-related services for governments. Finally, Vifor makes products for iron deficiency and nephrology (kidney/kidney care).

As previously mentioned, CSL’s plasma collection unit creates life-saving treatments for people with serious diseases worldwide. CSL relies on plasma and blood collections to conduct its primary operations; and acquisitions are increasingly part of CSL’s activities. Investors often use CSL as an indirect way to profit from rising healthcare spending.

Stock price valuation

One way to get a “quick read” on where the WOW stock price stands is to study something like the dividend yield over time. Keep in mind that the dividend yield is essentially the ‘cash flow’ to a shareholder, but this can be affected by annual or bi-annual fluctuations. Currently, Woolworths Group Ltd shares have a dividend yield of around 3.40%, compared to the five-year average of 2.66%. Simply put, WOW stock is trading below its historical average dividend yield.

Being a more mature company, the CSL share price offers a historical dividend yield of around 1.31%, compared to the five-year average of 1.24%. The Rask websites, especially our Rask Education platform, offer free tutorials explaining Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). Either model would be a better way to value CSL’s share price.