Becton, Dickinson and Company (NYSE:BDX) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 9th of March will not receive this dividend, which will be paid on the 31st of March.
Becton Dickinson’s upcoming dividend is US$0.79 a share, following on from the last 12 months, when the company distributed a total of US$3.16 per share to shareholders. Last year’s total dividend payments show that Becton Dickinson has a trailing yield of 1.3% on the current share price of $239.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.
See our latest analysis for Becton Dickinson
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Becton Dickinson paid out 110% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Becton Dickinson generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.
It’s good to see that while Becton Dickinson’s dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we’d view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re discomforted by Becton Dickinson’s 14% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Becton Dickinson has increased its dividend at approximately 9.1% a year on average. That’s intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Becton Dickinson is already paying out 110% of its profits, and with shrinking earnings we think it’s unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is Becton Dickinson worth buying for its dividend? It’s never great to see earnings per share declining, especially when a company is paying out 110% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Becton Dickinson’s cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It’s not an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.
With that in mind though, if the poor dividend characteristics of Becton Dickinson don’t faze you, it’s worth being mindful of the risks involved with this business. For example, we’ve found 2 warning signs for Becton Dickinson (1 is a bit concerning!) that deserve your attention before investing in the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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