Becton, Dickinson and Company Stock Analysis

Becton, Dickinson and Company (BDX), a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion has paid uninterrupted dividends on its common stock since 1926 and increased payments to common shareholders every year for 39 consecutive years.

The most recent dividend increase was in November 2011, when the Board of Directors approved a 10 % increase in the quarterly dividend to 45 cents/share. Becton Dickinson’s largest competitors include Medtronic (MDT), Baxter International (BAX) and Boston Scientific (BSC).

Over the past decade this dividend growth stock has delivered an annualized total return of 8.70% to its shareholders.

The company has managed to deliver a 13.50% annual increase in EPS since 2002. Analysts expect Becton Dickinson to earn $5.84 per share in 2011 and $6.45 per share in 2012. In comparison Becton Dickinson earned $5.59 /share in 2011. The company has been able to buyback 1.10% of its shares outstanding every year on average over the past decade.

The company’s Return on Equty has expanded over the past few years, from 20% in 2002 to 24% in 2011. 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 17.30% per year since 2001, which is much higher than the growth in EPS. Given the low dividend payout ratio however, Becton Dickinson can afford to raise distributions faster than earnings for at least one and a half to two decades.

A 17% growth in distributions translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1974 we see that Becton Dickinson has actually managed to double its dividend almost every six years on average.

The dividend payout ratio has increased from 21.80% in 2002 to 29.30% in 2011. Future increases in dividends above the rate of dividend increases could lead to further expansion in this indicator. 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 12.70 times earnings, has a sustainable dividend payout and yields 2.50%. I would consider initiating a position in the stock on dips below $72.

Full Disclosure: Long MDT

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