Dividend Investing Ideas Center
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Healthcare is an exciting industry. We all know the statistics on rising healthcare demand, the “greying” of the world and our ever-expanding global population. There’s plenty of growth behind healthcare both as theme and sector. Under that framework, investors tend to focus on the flashier biotech and drug manufacturers. After all, there is something sexy about a firm working on the latest cure for cancer.
You know what’s not sexy? Catheter tubing.
But there are plenty of profits to be made in providing the non-sexy, yet-essential stuff in healthcare. Just ask Becton, Dickinson and Company (BDX ). The firm has become a dividend and earnings powerhouse over the last few decades as the leading provider of all this ‘boring stuff’. However, don’t let its historically-boring nature fool you – BDX still has plenty of high-tech growth behind it.
All in all, Becton, Dickinson could be one of the best healthcare stocks to own for the long haul.
It’s easy to write off Becton, Dickinson in favor of more exotic fare in the healthcare sector. At its core, BDX is a sharps manufacturer. The firm makes a variety of needles, syringes and other delivery-related devices. BDX’s catalog spans everything from diabetes/insulin needles, catheters and vaccines to more complicated fare like regional-anesthesia products and drug-delivery products. That’s pretty boring stuff.
But as we said in the opening, boring can be beautiful.
In BDX’s case, the reason is that most of this stuff is single use. You use a needle, IV catheter or dosing syringe and it gets thrown into the garbage. You can’t use it on another patient or ever again. Every day, across every doctor’s office, clinic or hospital, they use hundreds, if not thousands, of these sorts of single-use devices.
That fact has them coming back to BDX to restock their supplies on a regular basis. And considering that Becton, Dickinson is the largest manufacturer of this kind of medical equipment and features a huge distribution network, doctors and hospitals are giving BDX the call every month over other smaller rivals.
This steady nature has made BDX a consistently profitable firm over multiple years. So much so that BDX has managed to consecutively raise its dividend for the last 44 years.
Boring needles form the base of BDX’s profits – but there are plenty of growth opportunities as well. Part of that comes from its recent buyout of CareFusion.
CareFusion makes all sorts of “higher-tech” medical devices, including diagnostic-testing equipment and surgical clippers. These devices feature higher margins than diabetes needles, and are often multi-use items. The kicker is that many of BDX’s single-use items are needed to use CareFusion’s products. For example, nurses need BDX’s IV supplies to run CareFusion’s infusion pumps. This creates plenty of future demand for BDX once a hospital has chosen any of CareFusion’s devices.
And as if that growth wasn’t enough, BDX is also getting smart with partnerships. The company has partnered with other drug and device makers to make its syringes the method of delivery. For example, BDX recently ventured with Medtronic (MDT ) to use BDX FlowSmart technology in several of MDT’s insulin-infusion products. These collaborations will only serve to enhance its bottom line down the road.
Finally, BDX has moved beyond hospitals and into the lab. The firm has a healthy-sized life sciences division and supplies all sorts of PC tubes, syringes, plates and other equipment (often single-use) to the drug manufacturers and researchers of the world. With bioinformatics and customized therapies becoming the wave of the future, BDX is positioning itself – thanks to its already strong relationship with hospitals – to take the lead.
And let’s also not forget the firm’s commitment to innovation among its boring sharps-product lines. BDX continues to improve its basic designs.
Add it up, and you get one heck of a healthcare stock.
A healthcare stock that continues to impress on earnings. Analysts expect BDX to grow its earnings 11.43% next year over 2016’s numbers. And it’ll probably get there and then some. Becton, Dickinson has a long history of earnings beats. Last quarter was a nearly 9% beat on estimates.
Those sorts of rapid rises in earnings growth have also translated into some decent dividend increases.
On the surface, BDX has a low yield, currently only 1.58%. However, it has been a dividend-growth giant over its history. The annual rate of dividend growth for shares has averaged nearly 12.8% over the last ten years. Over the last three years, it has been around 10%. That fact is very impressive and considering its forward-payout ratio is just 31.25%, there is plenty of room to raise payouts further.
And, yet, at a forward P/E of 19, BDX is still cheap relative to its medical device rivals.
Becton, Dickinson is a prime example of how boring can be beautiful for investors. BDX offers the perfect combination of steady demand and growth to drive investors’ portfolios into the future. It’ll also drive plenty of dividend growth into their wallets as well.