STERIS plc (STE): A Hidden Gem in the Dividend World

In an era where many investors chase high-yield stocks, STERIS plc (NYSE: STE) remains an under-the-radar opportunity. With a 9-year track record of dividend increases, a conservative payout ratio, and a fortress-like balance sheet, this healthcare solutions provider offers stability and growth potential. Let’s dissect why STERIS could be a top buy for income-focused investors.

Financial Fortitude Anchors the Dividend

STERIS’s dividend yield of 1.01% (as of April 2025) may seem modest compared to some sectors, but its sustainability is unmatched. The company’s payout ratio—46% of earnings—is comfortably below the 60% threshold that often signals risk. This conservative approach, paired with a $700 million free cash flow target for fiscal 2025, ensures dividends remain secure even amid macroeconomic headwinds.

The $0.57 quarterly dividend, paid consistently since early 2024, reflects management’s confidence. With $588 million in free cash flow generated in the first nine months of fiscal 2025 alone, STERIS has ample room to grow dividends further.

Segment Strengths Drive Diversification

STERIS operates in three key segments, each contributing to its resilience:

1. Healthcare:
2. Revenue grew 7% in Q3 2025, fueled by 9% growth in consumables (e.g., disinfectants) and 13% in services (equipment maintenance).

3. Capital equipment sales dipped 5%, but this segment’s shift toward recurring revenue streams (consumables/services) reduces volatility.

4. Applied Sterilization Technologies (AST):

5. Revenue rose 10% in Q3, with 7% growth in contract sterilization services and strong capital equipment sales.

6. This segment benefits from heightened post-pandemic demand for sterilization solutions in healthcare and life sciences.

7. Life Sciences:

8. Despite a 7% revenue decline due to a 2024 divestiture, organic growth in consumables (e.g., pharmaceutical detergents) surged 13%, signaling operational efficiency.

The diversified revenue streams reduce reliance on any single product, making STERIS a stable bet in cyclical markets.

Cash Flow Machine

STERIS’s operating cash flow hit $887 million through nine months of fiscal 2025, up 24% year-over-year. This cash engine funds not only dividends but also strategic moves like the acquisition of BD’s surgical instrumentation business, which boosted Healthcare segment margins.

The company’s debt-to-equity ratio of 0.5x (as of April 2025) further underscores its financial health. With $98 million in shares outstanding, the market capitalization of $21.7 billion suggests it’s still undervalued relative to peers.

Risks on the Horizon

No investment is without risks. STERIS faces:
- Supply chain disruptions: Critical for its manufacturing operations.
- Currency fluctuations: A $0.10 drag on fiscal 2025 EPS due to unfavorable foreign exchange rates.
- Healthcare spending cuts: Capital equipment sales in Healthcare fell 10% in Q1, signaling cautious hospital budgets.

However, the dividend cover ratio of 2.0 (earnings vs. dividends) and strong free cash flow mitigate these risks.

Conclusion: A Buy for Income Investors

STERIS plc offers a compelling blend of dividend safety and growth. With a 46% payout ratio, $700 million free cash flow guidance, and a 9-year dividend growth streak, it’s primed to outperform in volatile markets.

The stock’s 1.01% yield may not excite yield-chasers, but its 11% year-to-date price surge (as of April 2025) suggests investors are beginning to recognize its value. Add this to the fact that 98% of its revenue comes from recurring consumables and services—a defensive mix—makes it a rare dividend stock with both income and growth appeal.

In a sector where predictability matters most, STERIS’s focus on infection prevention and sterilization—a $10 billion global market—positions it as a long-term winner. For income investors seeking more than just yield, STERIS plc is a buy now.

Final Takeaway:
- Dividend Yield: 1.01% (secure, with room to grow).
- Free Cash Flow: $700M+ expected for fiscal 2025.
- Growth Catalysts: Recurring revenue streams, untapped sterilization demand, and a lean balance sheet.

STERIS plc isn’t just an overlooked dividend stock—it’s a well-oiled machine in a critical industry.