Ask the Rational Investor: Finding Safety in Dividends
Over the last several months, I’ve written about different healthcare companies, such as Johnson and Johnson and CVS Health. Healthcare stocks offer unusual value and predictability in today’s market.
Becton, Dickinson, and Company offers similar value with a dividend yield of 1.3% and has consistently grown sales by double digits. Becton, Dickinson operates in three broad categories: Medical, Life Sciences, and Interventional, and typically has a top-market share in each category.
The companies’ sales are well diversified in over 190 countries and over 27,000 active patents. Initially, you may not recognize Becton, Dickinson’s brand name—but they make a variety of consumables that hospitals and medical offices use every day. Examples range from catheters, urine output monitors, and medication delivery solutions.
Companies with highly predictable business models, such as Becton, Dickinson, often are overlooked and underappreciated due to their mature business model and moderate growth rates.
Becton, Dickinson has high gross margins and profit margins representing a business with strong competitive advantages.
Management has historically allocated cash flow in a shareholder-friendly manner. As a refresher, management can allocate capital in several different ways, such as: pay a growing dividend, repurchase shares, reinvest in the business, pay down debt, and acquire other businesses.
In addition to rising dividends, Becton’s management has pursued many small acquisitions to expand its product portfolio, allowing the company to be more efficient in selling products with the same sales team.
Becton, Dickinson’s stock has been dampened by the voluntary recall of Alaris Pumps, which were used for the infusion of medications in hospitals. It is unclear when this issue will be resolved completely, but the current valuation seems reflective of the issue.
Investors today will benefit from Becton’s relatively attractive dividend yield, sales growth, and eventually the resolution of the Alaris pump issues. As always, investors should consult with their portfolio manager to determine the relative appropriateness of investing in any stock paired with their goals and risk tolerance.
Sources: Factset and company reports
Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.