Having children can be an expensive proposition, as a young family finds itself with ramped-up spending, just at a time when one of them is out of the workforce. A potential consolation is to find some stocks that benefit from that spending. Here are five stocks leveraged to the spending on juvenile humans.

Conception

Assisted reproductive services does not sound like something you would expect to find on the stock market, but it is actually a hot little mini-sector – if two stocks can be said to make a sector. First Virtus Health Limited (VRT), the largest IVF services provider in Australia, floated in May 2013, as its private equity owner Quadrant exited the stock (having made more than three times its investment.) Virtus was issued at $5.68 in June 2013, and hit the market with a bang, gaining 9% on debut. Since then the stock has moved to $7.90, with 39 cents of dividends in the kitty as well.

Source: Yahoo! 7 Finance, 27 April 2015

Then fellow IVF services provider Monash IVF Limited (MVF), formerly owned by Monash University, floated in June 2014. MVF, which is the second largest fertility service provider in Australia, also made a strong debut, moving from its issue price of $1.85 to $1.97, but the stock has not traded above its offer price since, and currently MVF changes hands for $1.51. It paid a 3.25 cents interim dividend in March.

Source: Yahoo! 7 Finance, 27 April 2015

What these two stocks have going for them is that they have demographics in their favour: the female population is growing, and more Australian women are having babies later in life. The social acceptance and awareness of IVF services have increased, as has the accessibility of those services. The demand for their services is growing and is likely to do so for some time. It is a very high-return business to be in: these stocks slot in as defensive healthcare stocks, but with strong growth prospects.

For Virtus, the analysts’ consensus forecasts expect earnings per share (EPS) to rise by 12.4% this financial year, to 43.6 cents, lifting a further 14.7% in FY16, to 50 cents. The analysts see Virtus boosting its dividend by 2.7 cents this year, to 28.7 cents, and adding 3.8 cents to 32.5 cents a share in FY16. At $7.90 that prices the stock on a FY15 prospective fully franked yield of 3.6%, rising to 4.1% in FY16. And the analysts’ consensus price target looks for Virtus to reach $8.70, implying 10% upside from the present price.

Monash IVF has not been a great story for float subscribers: the stock has not traded above its offer price of $1.85 since its debut day. The 18% decline since listing is no doubt annoying for float subscribers, but it gives an opportunity to new investors: the analysts’ consensus price target for MVF sees the stock rallying to $1.86, implying 23% upside from the present – with a 7.7 cents dividend expected in FY16, which would deliver a prospective fully franked yield of 5.1%.

Nappies

Nappies in this country are dominated by Kimberly-Clark’s Huggies brand, but Asaleo Care Limited (AHY) aims to change that. Asaleo, which listed on the stock market in June 2014, makes New Zealand’s top-selling nappy, Treasures, and will expand into the Australian nappy market using that brand.

Source: Yahoo! 7 Finance, 27 April 2015

Asaleo makes a wide range of personal hygiene products, including Sorbent toilet paper and Libra feminine hygiene products. The stable of products also includes the TENA range of incontinence hygiene products, Handee and Tuff Mate paper towels, Deeko tableware, Purex and Orchid tissues, Treasures nappies and Tork professional hygiene products.

Asaleo sells the bulk of its products – 69% – to retailers, such as Coles, Woolworths, and Metcash, with the rest of its sales classed as business-to-business: these go to major distributors, hospitals, aged-care facilities and large companies, including major fast food chains and distributors such as Staples and OfficeMax.

Asaleo was floated at $1.65 a share, and has subsequently moved to $1.90. The company paid a 5.4 cents dividend (for 2014) in March. This year the analysts that follow Asaleo expect a 9.8 cents dividend, pricing the stock on an unfranked yield of 5.1%, and the 10.5-cent dividend expected in FY16 lifts that yield to 5.5%. The analysts’ consensus price target looks for Asaleo to move to $2.03,

Baby food

Tasmanian-based producer and distributor of 100% Australian made organic baby food products, Bellamy’s Australia Limited (BAL), was floated in August 2014, to a rapturous reception. Issued at $1, the shares hit the ASX screens at $1.31, and have since cruised to $3.47.

Source: Yahoo! 7 Finance, 27 April 2015

Bellamy’s produces an organic food range for babies and children, with 32 products across infant formula and baby food. All of BAL’s products are Australian-made and 100% certified organic. Consequently, its products attract a premium price which parents are willing to pay for their children to have the best nutrition. Selling organic products provides BAL with a point of differentiation in a very competitive market place and it is the fastest growing baby formula company in Australia with a market share of over 14%. The brand is well established in Australia and has a growing presence in China, Singapore, Hong Kong, Vietnam, Malaysia and New Zealand.

Bellamy’s was never going to be an income stock – the prospectus flagged an annual dividend yield of 1.6%, and at $3.47, the expected FY16 dividend will generate a yield even less than that – but analysts expect the capital growth story to run further yet. Their consensus price target is $3.85, which would represent 11% growth from the present price.

Childcare

G8 Education Limited (GEM) owns 437 childcare centres in Australia and 18 centres in Singapore. The stock has been a good performer on the stock market in recent years, rising from 9 cents in 2009 to $5.58 in 2014, but has since slipped back to $3.63. Analysts expect G8 to pay a dividend of 25.6 cents a share in FY15, rising to 27.1 cents in FY16: that prices GEM on a prospective fully franked FY15 yield of 6.9%, rising to 7.3% in FY16. Even better, the analysts that follow the stock have a consensus price target of $5.00, which is a cool 35% above the current share price (broker UBS has a target of $6.22).

Source: Yahoo! 7 Finance, 27 April 2015

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.