Dividend Aristocrats In Focus Part 25: CR Bard - Sure Dividend Sure Dividend

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Dividend Aristocrats In Focus Part 25: CR Bard


Published November 1st, 2016 by Bob Ciura

CR Bard (BCR) traces its roots to 1907, when Charles Russell Bard, an American importer of French silks, began importing Gomenol in New York City. Gomenol was commonly used in Europe at that time, and Mr. Bard used it to treat his discomfort from tuberculosis.

bcr-gomenol

Source: CR Bard Investor Relations

By 1923, CR Bard was incorporated. It would soon develop the first balloon catheter, and slowly added more products to its portfolio. Over the course of its more than 100 years in existence, CR Bard has been a pioneer in disposable medical supplies.

Because it is so stable, CR Bard has rewarded shareholders with consistent dividend increases for a very long time.

The company is one of only 50 Dividend Aristocrats – stocks with 25+ years of consecutive dividend increases.  CR Bard has increased its dividend an impressive 45 years in a row.  You can see a list of all Dividend Aristocrats here.

Keep reading this article to learn more about the investment prospects of CR Bard.

Business Overview

CR Bard is a medical supply. It operates in four main segments, each of which plays an important role:

CR Bard has a diversified customer base. It sells its products to a variety of customers, which include hospitals, individual health professionals, extended care facilities, and more.

Plus, these businesses have each generated at least 3% compound annual revenue growth over the past five years. Over the past decade, CR Bard has increased earnings-per-share by 10.7% per year. Its earnings-per-share nearly tripled from 2006-2015.

Despite a difficult operating climate this year, the company continues to perform well. Growth for multi-nationals like CR Bard is being weighed down by the strong U.S. dollar. But CR Bard still posts solid growth in its key fundamental metrics.

Over the first nine months of 2016, CR Bard grew total sales 8% to $2.45 billion. All four operating segments generated revenue growth over this period. In constant currency, the urology and surgical specialties businesses were the best-performers. They each grew sales by 13% in the first three quarters, year over year.

CR Bard should extend its streak of double-digit earnings-per-share growth going forward.

Growth Prospects

CR Bard has plenty of growth left in the tank. That is because of its advantageous business model. As a global health care supplier, CR Bard should benefit from the aging population. Mature markets like the U.S. have large populations of retired citizens.

As the Baby Boomers retire, it should create a long-term tailwind for health care companies like CR Bard. This is the main reason why it has exhibited such strong earnings-per-share growth over the past 10 years. These trends should only continue moving forward.

Another compelling growth catalyst is expansion in the emerging markets. These are nations like China, where GDP growth exceeds that of more mature markets like the U.S.

CR Bard intends to capitalize on this opportunity by investing additional resources in its emerging market operations. The company has significantly added to sales representatives in under-developed regions in recent years.

bcr-sales-reps

 

Source: 2016 Analyst Day Presentation, page 25

In all, CR Bard is expected to grow earnings-per-share by 12% this year and another 9% in 2017.

Competitive Advantages & Recession Performance

CR Bard has maintained such a long history of growth in earnings-per-share and dividends, thanks to its competitive advantages. The company attributes its operating advantage to its people, process, geography, and products.

bcr-competitive-advantage

Source:  2016 Analyst Day Presentation, page 10

The company’s core strategic objectives are to compete selectively in the highest-growth opportunities, while keeping costs low. This allows CR Bard to maintain low average selling prices, and is a benefit of scale. CR Bard is a very large company with a $16 billion market cap.

Another competitive advantage for CR Bard is its innovation, while simultaneously limiting expenses. The company has invested more in R&D as a percentage of SG&A expense than many of its core competitors in recent years.

bcr-rd-spending

Source: 2016 Analyst Day Presentation, page 23

CR Bard not only survived the Great Recession, it thrived. The company managed to grow earnings-per-share in each year of the recent recession. Its growth rate was extremely impressive; from 2007-2010 CR Bard grew earnings-per-share by 46%:

The reason for this performance is that health care patients need their medical supplies. They cannot do without them, regardless of the condition of the economy. This provides CR Bard with a highly recession-resistant business model.

Few companies can boast a track record of earnings-per-share growth during every year of the Great Recession.

Valuation & Expected Total Return

CR Bard stock has a price-to-earnings ratio of 22.5 using adjusted earnings.  For comparison, the S&P 500 has a price-to-earnings ratio of around 24.5.

CR Bard is a high-quality industry leader. Its strong profitability and high growth rates explain the above-average valuation…  But it may not appeal to dividend investors.

That’s because the company has a dividend yield of just 0.5%.  This is well below the S&P 500′ average dividend yield.  The reason to invest in CR Bard isn’t for current income, but rather for its total return potential.

CR Bard stock has delivered a 147% return over the past five years. Investors should expect the following returns going forward:

Under this assumption, the stock would provide total returns of 10.5%-12.5% per year going forward.  This is before any changes in the valuation multiple.

Final Thoughts

CR Bard does not get much coverage in the financial media, but it deserves far more attention than it gets. It is a highly profitable company operating in a growth industry. It also has a unique business model that provides it with durable competitive advantages.

Although it doesn’t have the highest dividend yield around, CR Bard is an attractive stock pick for dividend growth investors looking for total returns rather than current income.  Low yielding stocks do have a place in dividend portfolios.

CR Bard is a shareholder friendly stock, despite its low yield.  The company’s management prefers to return cash to shareholders through share repurchases rather than dividends.

CR Bard currently ranks in the top third of stocks with 25+ years of steady or rising dividends using The 8 Rules of Dividend Investing.  The company is a long-term hold at current prices.


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