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Stock Analysis: Becton Dickinson

Becton, Dickinson and Company, a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion has increased distributions for the past 38 consecutive years. The latest dividend increase was in November 2010, when the company raised distributions by 10.80% to 41 cents/share.

Over the past decade this dividend growth stock has delivered an annualized total return of 10.20% to its shareholders.

The company has managed to deliver an average increase in EPS of 13% per year since 2000. Analysts expect Becton Dickinson to earn $5.50 per share in 2011 and $6.12/share in 2012. The diversified product offering is a strong case behind the company’s business. Another positive is the strong sustainable global demand for the company’s diabetes-care, disease testing and safety products. The increased demand for cell analytics products in the US, should bolster growth in Becton Dickinson’s biosciences segment. The company is a diversified global player in the healthcare equipment field, with almost 55% of its sales derived outside of the US.

The company’s return on equity has been on the rise since 2000, has reach an impressive 25% in 2010. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 16.30% per year since 2000. A 16% growth in distributions translates into the dividend payment doubling every four and a half years. If we look at historical data, going as far back as 1964, we would see that Becton Dickinson has actually managed to double its dividend payment every six and a half years on average.

The dividend payout ratio has increased slightly over the past decade, although it never exceeded 50%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Becton Dickinson is attractively valued at 15 times earnings, yields 2.00% and has a sustainable dividend payout. Although Becton Dickinson does have the characteristics of a great business with a strong competitive advantages, the low current yield as well as my current exposure to the sector makes this stock a hold. I would continue monitoring the stock and will consider initiating a position in the stock on dips.

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