Becton Dickinson (BDX) lifts dividend by 11%, but trades at a premium price.

Becton Dickinson’s (NYSE:BDX) dividend was increased by 11%. Its overall yield is below that of the S&P 500 Index, at 1.71%. The firm has paid a dividend since January of 1993.

Becton Dickinson is a New Jersey based manufacturer and distributor of medical supplies that was founded in 1897.  The firm produces a wide variety of medical supply products such as syringes, needles, diagnostic equipment, catheters, and injectables.  The company also provides specimen and blood collection, molecular testing blood cultering, and microorganism identification through its Life Science Division.

Becton Dickinson has maintained a solid three-year growth rate of dividends of 10 percent. Becton Dickinson currently ranks 1st in yield within the large cap healthcare, medical instruments and supplies category.

The quarterly dividend for the December payment will be $0.73 versus the prior year rate of $0.66 per share. Becton Dickinson & Co. is not a member of our Top 100 Dividend Stock List (see below).

The dividend will be paid at the new higher rate on December 30, 2016, to shareholders of record at close of business on December 9, 2016. Becton Dickinson is currently priced at $172.75. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
12/9/2016 0.73
9/7/2016 0.66
6/7/2016 0.66
3/8/2016 0.66
12/8/2015 0.66
9/4/2015 0.6
6/5/2015 0.6
3/6/2015 0.6
12/8/2014 0.6
9/5/2014 0.545
6/5/2014 0.545
3/6/2014 0.545
12/6/2013 0.545
9/5/2013 0.495
6/5/2013 0.495
3/6/2013 0.495
12/6/2012 0.495
9/5/2012 0.45
6/6/2012 0.45
3/7/2012 0.45
12/8/2011 0.45
9/7/2011 0.41
6/7/2011 0.41
3/8/2011 0.41
12/8/2010 0.41
9/7/2010 0.37
6/7/2010 0.37
3/8/2010 0.37

Quantitative Analysis:

We examine Becton Dickinson upon our five key criteria, which include; 

Category Value Score
Dividend Yield 1.71% 317
Dividend Growth (3 to 6 year avg) 10%  206
Forward P/E 18.2  126
S&P Financial Rating BBB+ 160
Beta  0.85  75
Total Score   884

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
1.71% 10% 10% 57.65 2.96 2.25 3.29 1.46% 2.42%

Positives;

  • Becton Dickinson has paid out a dividend consecutively for the last 23 years.
  • Becton Dickinson maintains a beta of 0.85, lower than the average company.

Negatives;

  • Becton Dickinson’s dividend yield is below that of the S&P 500 Index.
  • Becton Dickinson’s current dividend yield (1.71%) is below its five-year average, historical dividend yield (1.94%), and well below the max yield of 2.42%.
  • Becton Dickinson is trading slightly above its ten-year average price/sales (P/S) average.

Latest Earnings & Overall Analysis:

Becton Dickinson issued its earnings data on November 3rd. The company reported $2.12 earnings per share for the quarter, beating the average estimate by 3 cents. This was better than the $1.94 posted in Q3 of last year. The medical company had revenue of $3.23 billion for the quarter, slightly higher than the consensus estimate of $3.13 billion. Revenues were up 5.6% from the year-ago quarter on a comparable currency-neutral basis.  The medical division generated revenue of $2.24 billion, up 7.3% from Q3 2015.

Lifesciences delivered slower growth with revenues up just over 2%, at $996 million. U.S. revenues account for over half of total sales. U.S. revenue rose by nearly 7% to $1.75 billion while revenue overseas came in at $1.48 billion. This was an increase of 5% on a currency-neutral basis. For next year, the company projected overall revenue growth of 4.5% to 5.0% and earnings per share in a range of $9.62 to $9.72. This would result in double-digit earnings growth for 2017 over this year’s numbers.  These numbers are also above consensus estimates of $9.44 per share.

It acquired CareFusion in March of 2015.  By adding CareFusion, the firm was able to expand its product suite to better sale products to hospitals. It also allows Becton to concentrate on assisting hospitals to better care for their patients with less errors, reducing costs.  Many of their products are also complementary such as catheters and drug pumps.  As CareFusion was weak internationally, it also allows Becton to expand CareFusion’s products to additional overseas markets.

Becton Dickinson is one of the most premier companies within the medical supply industry. The firm has posted consistent earnings and dividend growth over the past decade.  It has also a high R&D budget and has made smart acquisitions to expand its product line. The firm spends nearly 8% of total revenue on R&D, one of the highest levels within the industry.

In finishing up calendar year 2016, Becton outperformed expectations. Operating margins went up by 200 basis points and synergies from the CareFusion acquisition provided $120 million in cost savings. Cost savings from the deal should continue as management has guided for nearly $350 million in reduced spend by mid-2017. Overall revenue growth, which has been in the low 4% range should accelerate to close to 5% with the new product cycle and CareFusion’s excellent product line.

Priced at $172.79 a share, Becton’s stock has doubled since January 2013.   Based upon expectations of $9.50 a share in earnings next year, it trades at 18.2 times projected earnings and just over 20 times trailing earnings. The stock is trading at near 3 times sales, towards the top end of the historical ten-year range.  Its yield is below the S&P 500, although the firm does provide steady 10% dividend growth each year. The firm is a stalwart in the industry with a low beta and investment grade credit rating.  But its valuation is stretched by historical standards and a better entry price may be in the $150-$160 range.

Although the firm has strong merits, it’s low dividend yield, above average P/S ratio, and elevated forward P/E push Becton Dickinson outside our  Top 100 Dividend Stocks

Becton Dickinson & Co. Dividend Yield Chart (Click to enlarge)

bdx3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s