DRIP Candidate Winner: Becton, Dickinson

The good news about going into battle with two health-care studs? We know we'll have an ample supply of bandages, pain meds, and IV drips waiting for the loser. The head-to-head matchup between Walgreen (NYSE: WAG  ) and Becton, Dickinson (NYSE: BDX  ) for inclusion into the DRIP Portfolio reminded us of Rocky Balboa fighting Clubber Lang for the championship belt: It looked like a fair bout on paper, but Rocky had the fight under control from the get-go.

Playing the role of the Italian Stallion is Becton, Dickinson -- able to take a few punches and deliver devastating body blows. Unable to last the whole fight, Walgreen falls just short in almost every round.

Prospects/Growth (edge Becton, Dickinson)
We're concerned that Walgreen, which has already set up shop within five miles of 70% of Americans, is running out of room to expand. It is much easier for Becton, Dickinson to introduce new products or acquire new business lines. And since it spends more than 5% of revenue on research and development each year, we like the growth runway ahead.

Execution (edge Becton, Dickinson)
Over the past 10 years, Becton, Dickinson has generated a return on equity greater than 19% every year. It has achieved revenue growth in each of the last 10 years, too. Earnings from continuing operations? You guessed it: 10 years of growth. If we were awarding points, the company would earn a perfect 10 out of 10. Walgreen's has a similar revenue growth record, but its returns on equity haven't matched up lately.

Stewardship (edge Becton, Dickinson)
We were big admirers of both management teams, but Walgreen dropped the ball when CFO Wad Miquelon was arrested for the second time in a year for driving under the influence. While we don't suspect this sort of behavior is common in the upper ranks of the company, we certainly can't give Walgreen the nod over the conservative, shareholder-friendly, and Buffett-approved group at Becton, Dickinson.

Risks (edge Walgreen)
We get sick. We buy medication. Business doesn't get much more reliable than that -- and with more than 7,500 convenient locations, Walgreen's business is remarkably stable. We have more concern that newfangled surgical techniques may render some of Becton, Dickinson's bread-and-butter disposable products obsolete.

Valuation (edge Becton, Dickinson)
Becton, Dickinson shares have ticked up a bit, from $74 to $77 since I (Bryan here) originally wrote about the stock. But I'm still comfortable paying up to $80 a share, which is still 13% below my conservative estimate of intrinsic value. Compared to its peers, Becton, Dickinson looks like the right balance of high quality, cheap price and stable growth.

Company

Forward Enterprise Value-to-EBITDA

Forward P/E

Consensus Long-Term EPS Growth

Becton, Dickinson

7.9

14.6

9.7%

Covidien (NYSE: COV  )

7.7

12.2

11.1%

C.R. Bard (NYSE: BCR  )

8.2

14.4

11.8%

Thermo Fisher Scientific (NYSE: TMO  )

9.2

13.1

11%

Source: Capital IQ, a division of Standard and Poor's.

Bottom line: Becton, Dickinson knocks out Walgreen 4 to 1.

DRIP details
To begin your Direct Stock Purchase (DSP) / DRIP investment in Becton, Dickinson, start on this page. Be sure to carefully read the investment plan, which outlines all the fees and costs!

Among other things, you'll want to note:

  1. The minimum initial purchase is $250; after that, you have to invest at least $50 per purchase.
  2. You can choose to reinvest all or just a portion of the dividends you are paid.
  3. There's no fee for the initial setup, but you'll pay $0.03 per share for all purchases.
  4. When you're ready to sell shares, you'll pay a $15 fee and $0.15 per share sold.
  5. You'll get a statement after each dividend is paid, or you can view your account online.

Once you've reviewed the prospectus and are ready to enroll, create an account starting on disclosure policy makes us wait at least 10 days before purchasing our own shares. We'll let you know when we've made our transaction.

On that note, our initial investment in Microsoft is complete. We've signed up for the DSP and DRIP plans at Chevron, but are awaiting confirmation. Here's how our real-money DRIP port stands today:

Company

Shares Held

Average Price Paid

Price Today

Gain/Loss

Microsoft

20.16

$24.60

$25.23

+2.6%

Chevron

 

 

 

 

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Chevron is a Motley Fool Income Investor recommendation. The Fool owns shares of Microsoft. Motley Fool Inside Value has recommended Covidien, Microsoft, ThermoFisher Scientific and Becton, Dickinson. Try any of our Foolish newsletter services free for 30 days.

Todd and Bryan own shares of Microsoft, and they will soon be owners of Chevron and Becton, Dickinson via their shiny new DSP/DRIP accounts! True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 22, 2010, at 10:52 AM, TMF42 wrote:

    Just got my CVX DSP/DRIP statement in the mail -- I now own a whopping 2.8866 shares! Hey, with that dividend, I'll own 3.0000 shares in no time!

    Bryan

    TMF42

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