Founded in 1931 and headquartered in Deerfield, Illinois, Baxter International, Inc. (BAX) is a global, diversified healthcare company with expertise in medical devices, pharmaceuticals, and biotechnology. BAX manufactures products in 27 countries and sells them in more than 100 countries. The products are used in hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctor's offices, clinical and medical research laboratories, and by patients at home under medical supervision.
With a modest 7-year streak of dividend increases, BAX is a Dividend Challenger. It pays quarterly dividends in the months of January, April, July and October. Starting Yield on Cost is 2.89%.
BAX easily outpaced the S&P 500 over the last 10 years, nearly doubling its 68% return:
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BAX's earnings per share shows a general uptrend and easily supports its dividend growth, which is exhibiting a nice uptrend over the past 7 years:
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Analysis of BAX
Fair value estimates for BAX range from $35.53 (Graham Number method) to $80.00 (Morningstar), with a mean of $65.43. BAX trades at a discount of about 8% to the mean estimate.
The following table provides some key statistics for BAX:
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BAX also passes the following of my selection criteria:
- Dividend payout ratio is below 65% (49.49%)
- 7-year weighted average dividend growth rate is at least 7% (14.82%)
BAX fails my selection criteria in the following ways:
- Debt to Equity ratio is not below 50% (117%)
- Estimated 5-year total payback percentage does not exceed 16% (13.87%)
Also, the trailing twelve-month P/E ratio is 17.10x (above my target of 16x), although the forward P/E looks good at 13.42x.
BAX is a 5-star stock: (*******)
Other ratings for BAX
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Concluding Remarks
BAX is my fourth purchase this month! I've been diversifying DivGro into sectors in which I've had no holdings, until now. BAX is my first buy in the Health Care sector. I've also purchased NU (Utilities sector), and SJR and TGT (Consumer Discretionary sector). The only sector in which I currently don't have any holdings, is Consumer Staples.
What I like about BAX is its excellent dividend growth rate, exhibited this year in an impressive 35% increase over last year. Additionally, BAX is buying back a significant number of shares, thereby indirectly returning cash to shareholders. BAX's main revenue stream is relatively insulated from economic downturns, as it operates in the life-sustaining and critical care products category.
On the other hand, BAX's performance in the recent past has been somewhat lackluster. The company depends on the EU for about 33% of sales, of concern given recent fiscal and reimbursement tightening. In the U.S., the outlook also is of concern, as demand for some health care products is soft in light of potential price cuts due to health care reform.
BAX's lackluster performance resulted in a sell-off in September, providing a great buying opportunity. Given that the company generates good cash and pays a sustainable, growing dividend, I think picking up shares at an 8% discount to fair value seems like a good move to make.
37 shares of BAX represent $72.52 of expected annual dividend income, which increases DivGro's projected annual dividend income to $2,820.54.
BAX is the 23rd dividend stock purchase for DivGro.
Full Disclosure: Long BAX, NU, SJR, TGT
Me likes this one. :)
ReplyDeleteI have shares as well. you been busy shopping. You plan on buying more before the year ends?
Yes, I think BAX is a good one to own. I have funds for one more purchase of about $2,500. I'm looking for a Consumer Staples sector stock. Yesterday, I was ready to buy SYY, but it popped 20% at the open. That jump nullified my analysis. So, back to the drawing board...
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