Image Source: PixabayCompany Description: Becton, Dickinson, and Co. (BDX) 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, 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.) and 3.) above. Since BDX’s tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 103.3% premium to its calculated fair value of $116.43. BDX did not earn any Stars in this section.
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 two Stars in this section for 1.) and 2.) 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% The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 51 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, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The negative NPV MMA Diff. means that on a NPV basis the dividend earnings from an investment in BDX would be less than a similar amount invested in MMA earning a 20-year average rate of 3.75%. If BDX grows its dividend at 4.2% per year, it will never equal a MMA yielding an estimated 20-year average rate of 3.75%.
Peers: The company’s peer group includes: The Baxter International Inc. (BAX) with a 2.8% yield and Medtronic, Inc. (MDT) with a 3.3% yield.
Conclusion: BDX did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks BDX as a 2-Star Weak stock.Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $102.60 before BDX’s NPV MMA Differential increased to the $500 minimum that I look for in a stock with 51 years of consecutive dividend increases. At that price the stock would yield 3.7%.
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 12.2%. This dividend growth rate is higher the 4.28% used in this analysis, thus providing no margin of safety. BDX has a risk rating of 1.50 which classifies it as a Low risk stock.
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. The company’s Free Cash Flow Payout of 42% (up from 38%) and its Debt to total Captal of 39% (down from 42%) are both below my maximum amounts. In spite of operating in the competitive medical equipment market, BDX has enjoyed more favorable demand and pricing than others in the industry. The stock is now trading at a premium to my calculated fair value of $116.43 and its current yield is under 2.0%. As such, BDX is not a serious contender for my dividend growth portfolio at this time.More By This Author:Genuine Parts Company Dividend Stock AnalysisUnion Pacific Corporation Dividend Stock AnalysisKellanova Company Dividend Stock Analysis
