Will Becton Dickinson Help You Retire Rich?

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

Medical science continues to evolve, and the companies that make the products that doctors use to practice medicine have to keep up with changing times. Becton Dickinson (NYSE: BDX  ) has a long history of making medical devices, with a wide range of lab equipment, diagnostic products, and other equipment as simple as regular syringes. But is the company managing to hold its own in a rapidly advancing industry? Below, we'll revisit how Becton Dickinson does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Becton Dickinson.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $16.4 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 5 years Pass
  Free cash flow growth > 0% in at least four of past five years 4 years Pass
Stock stability Beta < 0.9 0.58 Pass
  Worst loss in past five years no greater than 20% (16.9%) Pass
Valuation Normalized P/E < 18 16.76 Pass
Dividends Current yield > 2% 2.3% Pass
  5-year dividend growth > 10% 13.5% Pass
  Streak of dividend increases >= 10 years 40 years Pass
  Payout ratio < 75% 29.9% Pass
       
  Total score   10 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Becton Dickinson last year, the company has achieved that elusive final point. With the stock having lagged the market, the valuation dropped just enough to get the medical device maker up to a perfect 10.

In the medical equipment field, up-and-coming new players seem to have a lot of momentum. Intuitive Surgical's (Nasdaq: ISRG  ) da Vinci surgical system and MAKO Surgical's (Nasdaq: MAKO  ) similar equipment for hip and knee replacement surgeries have revolutionized the industry, even though MAKO isn't yet profitable and Intuitive Surgical is only now starting to make money on a consistent basis. But even with its long history, Becton's FocalPoint medical imaging equipment has contributed to faster and more precise evaluation of patient health.

But Becton faces competition from several quarters. Covidien (NYSE: COV  ) plans to spin off its pharmaceutical business, leaving a medical equipment company that could make a bigger push toward the same markets that Becton pursues. At the same time, Stryker (NYSE: SYK  ) has a huge presence in the orthopedic implant field, and as it seeks out new growth opportunities, the odds increase that it too will cross paths more extensively with Becton's business.

For retirees and other conservative investors, however, it's hard to argue with a company that has raised dividends 40 years in a row, pays a decent yield that's growing at a healthy clip, and has avoided much of the share-price turmoil in the general market over the past five years. Becton will have to work to sustain its perfect score, but the company has a lot going for it, and success will likely stay within its reach for a long while.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills and teach you how to separate the right stocks from the risky ones.

If you really want to retire rich, no one stock will get the job done. Instead, you need to know how to prepare for your golden years. The Motley Fool's latest special report will give you all the details you need to get a smart investing plan going. Plus, it reveals three smart stocks for a rich retirement. But don't waste another minute -- click here and read it today.

Add Becton Dickinson to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of MAKO Surgical. Motley Fool newsletter services have recommended buying shares of Becton, Stryker, Intuitive Surgical, Covidien, and MAKO Surgical. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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