Consider a Healthy Dividend Stock from the Medical Sector

Published Tue, 01 Dec 2015 12:00 CET by

Market cap is a company’s total (dollar) value based on its outstanding shares. Many investors choose their investments based on the market cap indicator, thinking that large caps (companies with a dollar value above $10 billion) have a greater ability to ensure higher gains and dividend growth than mid-caps (companies with a dollar value between $2 billion and $10 billion) or small caps (companies with a dollar value below $2 billion). But, is this true?

Small-cap stocks are viewed as good investments due to their growth potential. It is estimated that small caps represent nearly 52.2% of publicly traded stocks, drawing much of the analysts’ attention. On the other hand, not all large caps absorb the risk involved and therefore investing in large caps may be riskier than selecting a small-cap with a lower valuation.

The article discusses three companies, one small-cap and two large-caps, that trade in the Medical Appliances & Equipment Industry. From the analysis, it becomes evident that it is not always about the market cap of a company, but primarily about a company’s ability to capitalize on growth opportunities and be able to sustain dividend growth, as it happens in this case with the small-cap.

Abbott Laboratories, Becton, Dickinson and Company and Meridian Bioscience YoY Stock Performance Graph
Abbott Laboratories (NYSE: ABT) is an Illinois-based health care company and a leader in the manufacturing and sale of health care products both in the U.S and worldwide. Becton, Dickinson and Company sells branded generic pharmaceuticals, diagnostic systems and tests, and pediatric and adult nutritional products through its segments to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians’ offices, and government agencies.

Mixed Q3 2015 Financials: Becton, Dickinson and Company Q3 2015 results were mainly driven by growth in emerging markets and the sustained strengthening of the U.S. dollar. Healthcare growth and demand remained strong notwithstanding challenges in the emerging economies, leading to a double digit organic growth led by Nutrition, branded generics and Diagnostics segments. Growth in the emerging markets continues to overtake growth in the developed markets as the need for healthcare products is growing faster than overall economic growth in these markets. Compared to Q3 2014, Abbott Laboratories’ results are as follows:

  • Revenues $5.2 billion, up 1.4% YoY from $5.1 billion
  • Operating Income $713 million, down 2.1% YoY from $728 million
  • Operating expenses $4.44 billion, up 2% YoY from $4.35 billion
  • Net Income $580 million, up 7.8% YoY from 538 million
  • Current annualized dividend per share $0.96, yielding 2.11% at a payout ratio of 32%. Abbott Laboratories’ dividend growth since 2000 is 26.3%
Future Outlook: ΑΒΤ continues to improve its gross margin 57% from 54% in Q3 2014, while for the FY2 2015, the management expects a gross margin close to 58%. Additionally, financing investments for the development of innovative product offerings is expected to continue. Analyst consensus estimates an average EPS of $2.54 for the next three years, lower than current EPS of $3.00 and average long-term growth earning rate of 10.03% annually.

Becton, Dickinson and Company (NYSE: BDX), a New Jersey-based medical company, engages in the development, manufacturing and sale of medical devices and instrument systems both in the U.S and worldwide. The company’s innovative solutions are distributed through various independent distribution channels, sales representatives, healthcare institutions, clinical laboratories, and general public. BDX’s current network comprises of more than 30,000 associates in 50 countries, whereas its subsidiary CareFusion is a global leader in the provision of medical technology.

Effective Strategic Acquisitions: through the acquisition of CareFusion, Becton, Dickinson and Company has significantly expanded its presence in the medication management industry. In addition, through the acquisition of Cellular Research and GenCell, the company has entered the high-growth area of genomics and is well-positioned to enjoy long-term growth in these areas with cost-effective technologies.

Weak Q4 2015 Results: as a result of acquisitions, BDX’s operating expenses have reached $2.76 billion, up 53.5% YoY from $1.80 billion in Q4 2014. This led to an operating income of $295.0 million, down 26.4% YoY from $401 million and to a net income of $181 million, down 39.9% YoY from $301 million in the same quarter last year. On the upside, revenues climbed to $3.06 billion, up 39% YoY from $2.20 billion in Q4 2014, suggesting an operating growth potential in the coming quarters. Also, BDX’s dividend growth since 2000 is 548.6% with a current annualized dividend per share $2.40 at a payout ratio of 70%.

2016 Outlook: for 2016, the company’s management expects circa 10% growth in emerging markets driven mainly by diversification in population in China and sustained growth in Indiaand Brazil. In addition, CareFusion revenues in the developed markets are expected to account for 16% of total revenues with China accounting for 5% of total revenues. Analysts that follow Becton, Dickinson and Company estimate an average EPS of $9.95 up to 2019 and an average earnings growth of 11.11% for the next five years.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
Abbott Laboratories 44.92 39.00 51.74 15.18% -13.18% 67.75 15.12 0.28 1.24 32%
Becton, Dickinson and Company 150.25 128.87 154.98 16.59% -3.05% 31.88 44.37 1.59 0.99 70%
Meridian Bioscience 19.57 15.56 20.62 25.77% -5.09% 0.83 23.27 0 1.07 94%

Meridian Bioscience (Nasdaq: VIVO), an Ohio-based life science company, engages in the development, manufacturing and distribution of diagnostic test kits for gastrointestinal, viral, respiratory, and parasitic infectious diseases. Meridian Bioscience distributes its products through various distribution channels using direct sales and independent distributors both in the U.S and in 60 countries worldwide.

Q4 2015 & FY 2015 Results: Meridian Bioscience’s Q4 revenues reached $47.07 million, up by 0.8% YoY from $46.69 in the same quarter last year, while its FY 2015 revenues of $194.8 million were increased 3.2% YoY from $188.8 million in 2014. The growth was primarily driven by a 11 % increase in Meridian Bioscience’s illumigene molecular product line, 10% increase in H. pylori product line and 9% increase in foodborne testing. In spite of the strong negative currency flows throughout 2015 and some incremental state tax and legal expenses that slowed down earnings, Meridian Bioscience has managed to report operating income of $13.26 million, up by 10.8% YoY from $11.97 million in Q4 2014 and net income of $8.47 million, up by 3.5% YoY from $8.18 million in Q4 2014. This was mainly the result of a decrease of 2.6% YoY in operating expenses, $33.81 million from $34.72 million due to lower R&D expenses. FY 2015 operating income reached $56.06 million, up by 13.7% YoY and net income reached $35.54 million, up by 6.5% YoY compared to FY 2014.

Dividend Issues: Meridian Bioscience delivers a quarterly cash dividend per share of $0.20, reaching an annualized dividend of $0.80, yielding 4.04% at a payout ratio of 94%, in line with the company’s policy to set a payout ratio between 75% and 85% annually. In terms of DPS growth, Meridian Bioscience demonstrates 233.3% growth in the period 1990 – 2015, from DPS $0.06 to DPS $0.2.

Future Outlook: Meridian Bioscience’s growth opportunities include geographic expansion, sustained innovation, focus on new products, and launch of new vertical market segments where resourceful diagnostics and tools are required. The company’s proven record of financial adeptness is expected to continue in the coming quarters primarily due to Meridian Bioscience’s strategic investments and acquisitions. Additionally, the company’s strong financial performance is further sustained by increased investor confidence as expressed in the stocks 20.23% YoY performance, well above the YoY performance of its peers. In terms of EPS and earnings growth, analysts forecast an EPS of $0.94 through 2018, up 10.2% from current EPS of $0.85 and 16% five-year annual earnings growth.

Stock name Dividend Yield
Meridian Bioscience 2.56
Abbott Laboratories 1.54
Becton Dickinson 1.18

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