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Becton, Dickinson and Co. (BDX) Dividend Stock Analysis

November 23, 2012 | About:

Linked here is a detailed quantitative analysis of Becton, Dickinson and Co. (NYSE:BDX). Below are some highlights.

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:

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.) and 3.) above. The stock is trading at a 28.1% discount to its calculated fair value of $105.08. 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:

1. Free Cash Flow Payout

2. Debt To Total Capital

3. Key Metrics

4. Dividend Growth Rate

5. Years of Dividend 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 39 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:

1. NPV MMA Differential

2. Years to > MMA

BDX earned a star in this section for its NPV MMA Differential of the $1,333. 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 9.8% per year, it will take one year to equal a MMA yielding an estimated 20-year average rate of 2.42%. BDX earned a check for the key metric years to > MMA since its one year is less than the five 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 Abbott Laboratories (NYSE:ABT) with a 3.2% yield, Eli Lilly & Co. (NYSE:LLY) with a 4.3% yield and Bristol-Myers Squibb Company (NYSE:BMY) with a 4.3% yield.

Conclusion: BDX earned one star 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 four stars. This quantitatively ranks BDX as a 4-Star Strong stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $113.12 before BDX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 39 years of consecutive dividend increases. At that price the stock would yield 1.6%.

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 5.5%. This dividend growth rate is lower than the 9.8% 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.

As a result of BDX’s innovation and judicial deployment of capital, its business continued to prosper during the economic downturn. The stock is favorably priced below my calculated fair value price of $105.08. However, its 2.4% yield is below my minimum 2.6% yield. This is a stock I will continue to monitor.

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). See a list of all my dividend growth holdings here.

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Rating: 3.8/5 (12 votes)


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GuruFocus has detected 7 Warning Signs with Becton, Dickinson and Co $BDX.
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