Income Expert Eyes Becton Dickinson's Convertible Preferred

08/13/2020 5:00 am EST


Martin Fridson, CFA

Publisher, Income Securities Investor

Becton Dickinson and Company (BDX) is a global medical technology producer that develops, manufactures, and sells medical supplies, devices, and laboratory and diagnostic equipment, notes dividend investing expert Marty Fridson, editor of Forbes/Fridson Income Securities Investor.

The company — a pioneer in selling U.S.-made glass syringes and hypodermic needles — operates through BD Medical, BD Interventional and BD Life Sciences.

The company stands to benefit from the rapid expansion of COVID-19 diagnostic testing and surveillance, as well as a worldwide vaccination campaign.

Our latest featured "Pick of the Month" is Becton Dickinson and Co.; 6.00% Series B, Mandatory Convertible Preferred Stock (BDXB).

The issue has an annual cash dividend $3.00; a current indicated yield of 4.98%; a conversion maturity date of 06/01/23; and an S&P rating of BB+. The issue's CUSIP number is 075887109.

This preferred share issue is mandatorily convertible into BDX common shares on 06/01/2023. The conversion settlement rate is 0.1736 share of common for each preferred share, if BDX’s market price is equal to or greater than $288.00.

If the common price is equal to or less than $240.00, the settlement rate will be 0.2083 common share for each preferred share. For common values between the aforementioned prices, the settlement rate is $50.00 divided by the market price.

Common valuation is based on the stock price for 20 consecutive trading days prior to the conversion date. Preferred shares may be converted at any time at the holder’s option, in batches of 20 shares, into 3.3722 shares of common stock (see prospectus).

BDX reported adjusted, fiscal 2Q 2020 net income of $702 million. Earnings per share of $2.55 handily beat analysts’ $2.28 estimates, with revenues surpassing expectations.

Although the company withdrew its 2020 guidance due to the pandemic, BDX stands to benefit from the rapid expansion of diagnostic testing and surveillance, as well as a worldwide vaccination campaign. 

Preferred dividends are taxed at the preferential 15%-20% rate. This investment is suitable for medium risk taxable portfolios. Buy up to $70.00 for a 4.29% current yield.

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