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Stock Analysis of Becton Dickinson

Becton, Dickinson and Company (BDX), a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. The company is a member of the dividend champions list, and has been able to boost distributions for 43 years in a row.

The company’s last dividend increase was in November 2014 when the Board of Directors approved a 10.10% increase to 60 cents/share. The company’s peer group includes Medtronic (MDT), Baxter International (BAX) and St. Jude Medical (STJ).

Over the past decade this dividend growth stock has delivered an annualized total return of 11.30% to its loyal shareholders.

The company has managed to deliver an 10.50% average increase in annual EPS since 2004. Analysts expect Becton Dickinson to earn $6.78 per share in 2015 and $7.42 per share in 2016. In comparison, the company earned $5.99/share in 2014.

Becton Dickinson has also managed to repurchase plenty of shares over the past decade, bringing the number of shares from 263 million in 2003 to 197 million in 2014. The company is not expecting much in terms of share buybacks following the acquisition of Carefusion, in an effort to deleverage quickly.

The return on equity has increased from 22% in 2005 to 23.50% by 2014. I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 13.70% per year over the past decade, which is higher than the growth in EPS. In my previous analysis I found that that BDX was one of the top dividend growth stocks for the past decade. The past four dividend announcements were for a hike of 10% in dividends each time. Going forward, I would expect dividend growth to closely approximate 10%.

A 10% growth in distributions translates into the dividend payment doubling every seven years on average. If we look at historical data, going as far back as 1975, one would notice that the company has actually managed to double distributions every six years on average.

The dividend payout ratio has increased from 27% in 2005 to 42% in 2013, before falling back to 36.40% by 2014.  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 slightly overvalued at 20.20 times forward earnings, yields 1.70% and has a sustainable distribution. I initiated a small starter position in the stock in late 2013, after which the stock took off. This prevented me from adding more fresh capital to the company. As a long-term dividend investor in the accumulation phase, I get excited if the companies I am interested in are on sale, because I get to buy more shares with my limited amounts of capital. Although this price is a low probability event, I plan on adding to my position on dips below $96/share, equivalent to an entry yield of 2.50%. If I relaxed the requirement and required an entry yield of 2% however, I would need the stock price to fall below $120/share before adding more money to the company.

Full Disclosure: Long BAX, BDX and MDT

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