Updated on October 30th, 2024 by Felix Martinez
Becton, Dickinson & Company (BDX) has increased its dividend for 52 consecutive years, and as a result, it recently joined the exclusive list of Dividend Kings.
The Dividend Kings have raised dividend payouts for at least 50 consecutive years.
You can download the full list of Dividend Kings, plus important financial metrics such as dividend yields and price-to-earnings ratios, by clicking on the link below:
You can see all 53 Dividend Kings here.
BDX has maintained its long dividend increase history thanks to its superior position in its industry. Its competitive advantages have fueled the company’s long-term growth.
As we see the potential for continued growth in the healthcare industry, BDX should keep increasing its dividend each year.
This article will discuss BDX’s business model, growth catalysts, and expected returns.
Business Overview
Becton, Dickinson & Company is a global leader in the medical supply industry. Founded in 1897, it operates in 190 countries and generates annual sales of almost $19 billion. Nearly half of the company’s revenue comes from outside the U.S. BDX is valued at $75 billion.
The company operates three segments. First, the Medical Division includes needles for drug delivery systems, as well as surgical blades. The Life Sciences division provides products for collecting and transporting diagnostic specimens. Lastly, the Intervention segment includes several of the products produced by what used to be Bard.
BD released earnings results for the third quarter of fiscal year 2024.
Source: Investor Presentation
For the third-quarter fiscal 2024 results show strong performance driven by effective margin management and growth across its product lines. The company reported $5.0 billion in revenue, with adjusted revenue reaching $5.1 billion, reflecting robust organic growth. GAAP diluted earnings per share (EPS) were $1.68, a 23.5% increase year-over-year, while adjusted EPS rose to $3.50, an 18.2% rise. Year-to-date cash from continuing operations surged by 60% to $2.7 billion, and free cash flow more than doubled to $2.2 billion. BD raised its fiscal 2024 guidance for adjusted EPS to a midpoint of $13.10 and revised its GAAP revenue growth projection to 3.7%, with organic revenue growth expected between 5.0% and 5.25%.
The company’s acquisition strategy and innovation initiatives are noteworthy. BD entered an agreement to acquire Edwards Lifesciences’ Critical Care Product Group for $4.2 billion, bolstering its portfolio in advanced monitoring technology. In its Life Sciences division, BD secured FDA approval for self-collected cervical cancer screening samples in healthcare settings, enhancing its diagnostic capabilities. Furthermore, BD expanded its single-cell research offerings by launching the BD Rhapsody™ ATAC-Seq Assay. These strategic moves align with BD’s goals under its BD 2025 strategy, as noted by CEO Tom Polen, who highlighted the company’s drive toward innovation and leadership in MedTech.
BD’s sustainability and corporate responsibility efforts were also emphasized in the quarter. The company reported surpassing its Scope 1 and 2 greenhouse gas reduction goals for fiscal year 2023, achieving an 18% reduction from its 2019 baseline. Additionally, BD released its 2023 Product Security Annual Report, underlining its commitment to transparency in product security and corporate responsibility. The company’s solid financials, strategic acquisitions, and focus on sustainability signal BD’s ongoing transformation and its confidence in achieving its long-term goals.
Growth Prospects
Healthcare stocks like BDX are typically purchased for their steady long-term growth. BDX is no exception; the company has grown earnings-per-share by almost 8% per year over the past decade.
Going forward, we expect the company to post a 8% annual EPS growth rate over the next five years. This growth will be achieved largely due to the aging U.S. population.
The U.S. has an aging population, meaning demand for healthcare supplies is only expected to rise going forward.
U.S. health expenditures are expected to total $4.666 trillion in 2023 and rise to $7.174 trillion in 2031, representing 5.5% annual growth.
This should be a broad tailwind from which major healthcare manufacturers like BDX will benefit.
BDX continues investing heavily in product innovation, which is critical to the company’s long-term growth objectives.
Becton, Dickinson & Company has aggressively added to its core business. This includes the company’s $24 billion addition of Bard in 2017.
The company recently purchased Parata Systems for $1.525 billion in an all-cash transaction last year. This acquisition provides BDX with a portfolio of pharmacy automation solutions, which enable pharmacies to reduce costs, enhance patient safety, and improve the patient experience.
The pharmacy automation market is currently worth $600 million and is expected to grow by roughly 10% annually to $1.5 billion in the U.S. in the next ten years.
Further acquisitions and share repurchases over the long term are likely to lead to additional growth in the future.
Competitive Advantages & Recession Performance
Becton, Dickinson & Company has significant competitive advantages, including scale and a vast patent portfolio. These advantages are due to high investment spending.
BDX spends over $1 billion each year on research and development. This investment is critical to the company’s ability to generate long-term growth and maintain its industry leadership.
The company aims for a balanced capital allocation structure.
Source: Investor Presentation
It is clear that its R&D spending has paid off, as the company possesses over 29,000 active patents.
These competitive advantages provide the company with consistent growth, even during economic downturns.
Becton, Dickinson & Company steadily grew earnings during the Great Recession. Becton Dickinson’s earnings-per-share during the recession are as follows:
- 2007 earnings-per-share of $3.84
- 2008 earnings-per-share of $4.46 (16% increase)
- 2009 earnings-per-share of $4.95 (11% increase)
- 2010 earnings-per-share of $4.94 (0.2% decline)
Becton, Dickinson & Company generated double-digit earnings growth in 2008 and 2009, during the worst years of the recession. It took a small step back in 2010 but continued to grow in the years since, along with the economic recovery.
The ability to consistently grow earnings each year of the Great Recession, which was arguably the worst economic downturn in decades, is extremely impressive.
The company continued to perform well in 2020 when the coronavirus pandemic caused the U.S. economy to enter a recession. BDX remained highly profitable and kept its dividend increase streak alive.
The reason for its recession resilience is that healthcare patients need medical supplies regardless of the state of the broader economy. This keeps demand steady from year to year.
Valuation & Expected Returns
We expect BDX to generate earnings-per-share of $13.10 this year. As a result, the stock is currently trading at a price-to-earnings ratio of 18.1.
We consider 19.0 to be a valuation for this stock, which is slightly below the 10-year average multiple.
As a result, we view BDX stock as undervalued right now.
If the P/E multiple increases from 18.1 to 19.0 over the next five years, shareholder returns would increase by 1% per year.
Also, dividends and earnings-per-share growth will boost shareholder returns. BDX shares currently yield 1.6%. We expect 8% annual EPS growth over the next five years.
BDX stock is expected to generate annual returns of 10.6% over the next five years.
Final Thoughts
Becton, Dickinson & Company is one of the newest members of the exclusive Dividend Kings list. Due to its top position in the healthcare industry, the company has maintained a dividend growth streak of more than 50 consecutive years.
Thanks to the aging U.S. population, the company should benefit from this long-term growth catalyst, which should allow BDX to continue raising its dividend for many years to come.
BDX is currently slightly undervalued. We see the potential for annual returns of 10.6% over the next five years, making BDX stock a buy at the present time.
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.