Becton, Dickinson (NYSE:BDX) recently announced a $0.05 per share -- or about 10% -- hike to its quarterly dividend. This is the company's 42nd consecutive annual dividend increase. That's the kind of stuff equity income investors love to see, a raise well above inflation and a well-established history of payout hikes. Let's dig a little deeper and see if Becton has what it takes to keep rewarding shareholders going forward.

Here's a business snapshot.

Company name

Becton, Dickinson (NYSE:BDX)

One sentence description

Becton, Dickinson manufactures and sells a broad range of medical supplies, devices, laboratory equipment and diagnostic products.

Recent price

$108.59

Market Cap

$21 billion

Forward P/E (next 12 months EPS)

17.5 based on company forward guidance

Forward Dividend Yield

2% with 35% payout ratio

Sector and Industry

Healthcare, Healthcare Equipment and Supplies

Competitors

Baxter, CR Bard, Covidien

Sources: Yahoo! Finance and company website.

A 2% dividend yield isn't very exciting by itself, but combine it with a track record of nice hikes every year, a health care market that should grow and a reasonable payout ratio and it starts to look pretty attractive. The plot below shows the percentage increase in the payout for each of the past 10 years. The recent history includes nice hikes during the tough market of '08 and '09 and has leveled off at about 10% for the past four hikes.

Sources: Company website and author's calculations.

Along with dividends, Becton has a stock buyback program that actually reduced the share count by about 4 million shares over the past year. And $450 million is targeted for share buybacks over the next 12 months.

There are a few concerns to go with the good news.

  • The new medical device tax in the Affordable Care Act dinged earnings by about four cents last quarter and will be a continuing drag barring a change to the law.
  • The stock price has already had a strong run this year gaining 37% and outpacing the S&P 500 index. I consider the stock fairly valued with a price-to-earnings ratio a little below the broad market.
  • When the Fed starts to tighten, higher interest rates will make fixed income investments like bonds more attractive to income investors which will put pressure on the price of dividend paying stocks.

Becton isn't an exciting stock --and that's a good thing for most income investors. The combination of steady demand for Becton's health care products, a comfortable dividend payout ratio and a corporate history of annual payout hikes through weak and strong markets sets the stage for continuing the long streak of raises and make Becton a good candidate for a spot in income-oriented portfolios.

Russ Krull owns shares of Becton Dickinson. The Motley Fool recommends Becton Dickinson. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.