Stock Analysis: Becton Dickinson & Co. (BDX)

This article originally appeared on The DIV-Net July 27, 2009.

Linked here is a detailed quantitative analysis of Becton Dickinson & Co. (BDX). Below are some highlights from the above linked analysis:

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: I consider 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 1.), 2.) and 3.) above. BDX is trading at a 21.0% discount to its calculated fair value of $90.76. BDX earned a Star in this section since it is trading at a fair value.

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 three Stars in this section for 1.), 2.) 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. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. 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 36 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)? 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 $2,384. 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 15.8% per year, it will take 6 years to equal a MMA yielding an estimated 20-year average rate of 3.82%.

Other: BDX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. In spite of the competitive landscape in the medical equipment market and reduced spending from both hospital and life science customers, BDX's product line has more favorable demand and pricing characteristics than the industry in general. BDX should continue to benefit from end-user demand in the life sciences industry, along with momentum in the diagnostics and diabetes management areas. Risks include slower recovery in key life science markets, adverse patent litigation, failed new product introductions and unfavorable foreign currency fluctuations.

Conclusion: BDX earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks BDX as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price could increase to $120.78 before BDX's NPV MMA Differential fell to the $500 that I like to see for a stock with 36 consecutive years of dividend increases. At that price the stock would yield 1.09%.

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 11.1%. This dividend growth rate is well below the 15.8% used in this analysis, thus providing a margin of safety. BDX has a risk rating of 2.00 which classifies it as a low risk stock.

BDX is a good company with a strong balance sheet. It possesses nearly every attribute that I look for when making an investment in a dividend company, except one. The company's current yield at 1.84% is well below the 3% minimun I look for. To earn the minimum return I expect, BDX would have to grow its dividend at 11.2% per year for the next 20 years. That would be a tough task to accomplish. Even though BDX is trading below its buy price of $90.76, I will wait and continue to watch the stock for a more favorable entry point. For additional information, including the stock's dividend history, please refer to its data page.

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 Income Portfolio).

What are your thoughts on BDX?


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