Company Description: Becton, Dickinson and Co. provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs and other settings.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
BDX is trading at a discount to only 3.) above. The stock is trading at a 22.5% premium to its calculated fair value of $82.26. BDX did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
BDX earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. BDX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 40 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
BDX earned a Star in this section for its NPV MMA Diff. of the $774. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as BDX has. If BDX grows its dividend at 9.9% per year, it will take 4 years to equal a MMA yielding an estimated 20-year average rate of 2.71%. BDX earned a check for the Key Metric 'Years to >MMA' since its 4 years is less than the 5 year target.
Memberships and Peers: BDX is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: The CR Bard Inc. (BCR) with a .80% yield, Baxter International Inc. (BAX) with a 2.8% yield and Medtronic, Inc. (MDT) with a 2.0% yield.
Conclusion: BDX did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks BDX as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $118.05 before BDX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 40 years of consecutive dividend increases. At that price the stock would yield 1.7%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 8.4%. This dividend growth rate is lower than the 9.9% used in this analysis, thus providing a margin of safety. BDX has a risk rating of 1.75 which classifies it as a Medium risk stock.
In spite of operating in the competitive medical equipment market, BDX has enjoyed more favorable demand and pricing than others in the industry. The company’s needle and surgical business has provided investors with robust returns for years. Strong global demand for the company's safety, diabetes care and disease-testing products should be sustainable in the foreseeable future.
The majority of BDX's sales are coming from international markets. This trend should continue based on continued growth in emerging markets. Soft demand in the United States and Europe along with the medical excise tax and pricing pressure, could delay the company's full recovery until 2014.
When BDX was last reviewed it was trading at a discount to my calculated fair value and had a modest yield of 2.4%. The stock is now trading at a premium to my calculated fair value of $82.26 and its current yield has decreased to under 2.0%. For now, BDX is not a serious contender for any of my income portfolios.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in BDX (0.0% of my Dividend Growth Portfolio) and was long MDT in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.
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