Dividend rate forecast at 5.6%! I would buy 1 share in the UK in October and hold it for over 10 years

Investor appetite for high dividend yields continues to grow thanks to inflation-fueled demand for additional passive income. However, while there are countless opportunities for high performance around the world London Stock Exchange now most of them seem unsustainable in the long run.

Since I don’t want to constantly be juggling stocks of different earnings companies over the next decade and beyond, I look for a specific type of dividend stock. Specifically, I’m looking for one that not only maintains payouts, but also increases them each year. And that’s it Bioventix (LSE:BVXP) in sight.

Sustainable passive income

For a company to deliver consistently growing dividends, it needs two key characteristics. First, a cash-generating business model. The second is to provide a product or service that will be in demand for decades. Bioventix appears to have both.

It is a biotechnology company specializing in the production of sheep monoclonal antibodies. To put it simply, they are used in diagnostic medicine to detect heart disease, cancer, infertility, and potentially even Alzheimer’s disease if the latest ongoing research proves effective.

Needless to say, disease detection probably won’t go out of fashion any time soon. And while there are other antibody suppliers around the world, Bioventix’s product portfolio has earned a reputation for quality.

Without a doubt, this is a niche product. However, demand is constantly growing, which allows you to constantly increase revenues, profits and generate free cash flow. So much so that the company is completely debt-free and has consistently raised its dividend for 10 years in a row.

The stock currently offers a slightly better-than-average dividend yield of 4.1%. However, analyst forecasts show that this payout level will continue to increase by 2026, up to 5.6%. And if trends continue, it may increase even more later.

Everything has its risks

Looking at the numbers, Bioventix’s achievements are admirable. This was also reflected in the share price. Since going public in April 2014, the shares of the biotechnology group have increased by over 600%!

However, even the best-looking companies in the world have their weaknesses. The difficulty in producing monoclonal antibodies has proven to be quite a formidable barrier to market entry for potential competitors. However, this has also been proven to be an obstacle to increasing production capacity.

At the same time, while the demand for diagnostic medicine is constant, the types of antibodies required may be somewhat cyclical. Sales of troponin antibodies were lower than expected, according to the group’s latest interim report.

Additionally, government changes to the headline corporate tax rate are also expected to have an adverse impact on earnings and cash flow. This change is, of course, beyond management’s control. Nevertheless, this increases pressure on the group’s profitability and, therefore, the dividend.

Despite these adversities, I approach this business with moderate optimism. Its valuation carries a small premium that creates additional volatility. However, given the long-term relevance of its products and the group’s impressive track record, it’s a premium I’m happy to pay. Therefore, I plan to add this company to my income portfolio as soon as I have cash available.