BDX’s balance sheet was stretched to finance the company’s acquisition of CareFusion, but management is focused on paying down debt over the next several years. Given the company’s consistent free cash flow generation, we aren’t concerned by the temporarily higher debt load. Importantly, there is plenty of cash flow to comfortably cover a larger interest expense and the dividend.
Source: Simply Safe Dividends
All things considered, BDX’s dividend is extremely safe. With a long operating history, a diversified portfolio of recession-resistant products, and strong brand recognition, BDX is a high quality blue chip dividend stock.
Dividend Growth Score
Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.
Becton Dickinson and Co (NYSE:BDX) achieved an excellent dividend Growth Score of 79, which means that it has some of the strongest dividend growth potential in the market. The company’s favorable rating is driven by its low payout ratios, strong earnings growth, and consistent cash flow generation.
BDX has increased its dividend for 44 consecutive years, firmly securing its spot on the list of dividend aristocrats. The company has consistently increased its dividend at a 10% annual rate over the last decade and most recently raised its dividend by 10% earlier this month.
Assuming BDX meets expectations for continued 10%+ earnings growth, we expect the dividend to continue growing at a similar rate.
Source: Simply Safe Dividends
Valuation
BDX trades at 17.6x forward earnings and offers a dividend yield of 1.8%, which is lower than its five year average dividend yield of 2.0%.
BDX’s management team expects the company’s sales and earnings to grow 4-5% and 10%+ per year, respectively. In other words, the stock appears to offer double-digit total return potential if all goes as planned.
BDX appears to be an excellent business trading at a reasonable price. However, its low dividend yield makes it more appealing for very long-term dividend growth investors.
Conclusion
Becton Dickinson and Co (NYSE:BDX) is an excellent medical technology company. Its acquisition of CareFusion appears to offer numerous long-term growth opportunities as the healthcare landscape continues evolving and international markets spend more on healthcare.
The company’s dividend is extremely safe with excellent growth prospects as well. If the company can deliver on management’s double-digit earnings growth goal, the stock looks attractively priced at less than 18x forward earnings estimates.
While the stock is not currently in our Top 20 Dividend Stocks portfolio, it’s one that long-term dividend growth investors should certainly keep an eye on.
Disclosure: None
