Thursday, December 1, 2011

Cheap Stock With A Recent Dividend Hike

I see a cheap health care stock currently on my radar that recently hiked its dividend by almost 10%. It has a P/E ratio of 13.16, and has a pretty solid balance sheet with a debt/equity ratio of 0.5. This medical surgical product manufacturer has a 5-year dividend growth rate of 15.5%, which is pretty solid. It has vastly underperformed the general market, currently down 12.71% on the year while the S&P 500 is only down 0.85%. This provides some potential value for the dividend growth investor. What company am I talking about?

Becton, Dickinson and Co. (BDX)

Per Morningstar:

Becton Dickinson is the world's largest manufacturer and distributor of medical surgical products, such as needles, syringes, and sharps-disposal units. The company also manufactures diagnostic instruments and reagents, as well as flow cytometry and cell-imaging systems. International revenue accounts for 55% of the company's business. 

Anytime I look at a company and they are the world leader in their prospective industry that gets my blood flowing. They have paid dividends to shareholders since 1962, when they initially went public and have raised dividends for 38 years in a row.

The company produces products that need to be constantly replenished by hospitals. They produce syringes and needles that are constantly replaced, much like disposable razor blades that the average consumer uses. And, as emerging markets continue to develop their health care systems and as hospital technology advances there will be a greater need for the products that BDX manufactures and supplies.

It currently sports a 2.44% entry yield, which isn't phenomenal but based on the business model I think that dividend growth can continue to outperform and quickly provide a shareholder outsized returns. Morningstar currently has BDX at a 4/5 star valuation, even after the recent market run-up.

What do you think? Are you a buyer of BDX at current prices?

Full Disclosure: None.

Thanks for reading.

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