Becton Dickinson Avoids Health-Care Flu

05/03/2007 12:00 am EST

Focus:

Charles Carlson

Editor, DRIP Investor

Charles Carlson, editor of the DRIP Investor, says medical device maker Becton Dickinson is a solid growth company with strong businesses and a consistently rising dividend.

A lot of health-care stocks are under the weather. Generic competition, the lack of blockbuster drugs, problems in the product approval process, and litigation have all led to many health-care stocks being sickly performers. One exception to the group’s malaise has been Becton, Dickinson & Co. (NYSE: BDX).

The company, a provider of medical diagnostics and devices, is trading around its 52-week high near $80. Consistent earnings growth has been a major driver of these shares. The company’s steady performance, rising dividend stream and solid finances should fuel above-average market gains over the long term. The stock represents a worthwhile holding for the growth portion of a DRIP portfolio.

Becton, Dickinson manufactures and sells medical supplies, devices, laboratory instruments, antibodies, reagents, and diagnostic products through its three segments: BD Medical (roughly 55% of annual sales), BD Diagnostics (30%), and BD Biosciences (15%).

Medical supplies include needles, syringes, intravenous catheters, surgical blades; critical-care monitoring devices, and ophthalmic surgical instruments. Diagnostic products include specimen-collection systems, blood-collection products, blood-culturing systems and rapid diagnostic assays. Products in the biosciences area include cell-imaging systems, monoclonal antibodies and kits, reagent systems for life sciences research, and diagnostic assays.

The company’s track record is impressive. Per-share profits have risen annually for well over a decade. Dividends, too, have consistently marched higher. In fact, Becton, Dickinson is a member of the small group of companies that has raised its dividend annually for at least the last 25 years.

Per share profits are expected to come in around $3.75 in fiscal 2007 ending September. That’s up from $3.28 per share in 2006. Becton Dickinson has beaten consensus earnings estimates in each of the last four quarters. The dividend was recently lifted 14% to a quarterly rate of $0.24½ per share. The stock yields 1.2%.

While not a cheap stock, Becton, Dickinson is not too pricey. These shares trade at 21x the fiscal 2007 consensus earnings estimate of $3.75 per share. That seems a fair multiple given the company’s impressive track record and growth potential. Please note that these shares have not split since 1998, so it would not be surprising to see a stock split from current levels.

Becton, Dickinson offers the attractive combination of dependable earnings growth and a steadily rising dividend stream. That one-two punch should lead to healthy returns for DRIP investors.

Becton, Dickinson’s direct-purchase plan permits initial purchases directly with an initial minimum of $250. The firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50. There is no enrollment fee. Purchase fees are just three cents per share.

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