This week, Fool analyst Jason Moser is standing in for Todd Wenning,  pitting Walgreen against Bryan Hinmon's Buffett-approved Becton, Dickinson (NYSE: BDX) in the Fool DRIP Portfolio's battle of health-care companies.

If you hate the flu like I do, you'll love that the Fool DRIP Portfolio is trying to make some money off it. Hey, if you can't beat it, profit from it. With health care making up 12% of the S&P 500, and demographic trends in North America and Europe creating a massive patient base, we're looking to find a high-quality, dividend-paying bulwark for our portfolio.

Jason and I have tied our hospital gowns up tight, and we're ready to pitch two undervalued and well-run health-care candidates for you to vote on. Both would likely make solid long-term holdings, but only one can win this battle.

Becton, Dickinson makes a $7 billion business out of selling syringes, catheters, scalpels and diagnostic tools to hospitals and clinics. Its products are diverse and nondiscretionary, which translates into a stable business that helps keep the world healthy.

If this sounds like fundamentals, your needle has hit the bull's-eye. The company focuses on the basics that make medical treatment possible: blood collection, diagnostic testing, and drug delivery. Of course, I'd be selling the company short if I didn't mention that it's highly innovative and has done wonders for patient safety by offering products that reduce the spread of infection.

Becton, Dickinson has spread the love to shareholders, though, with 37 consecutive years of dividend increases. Injecting this DRIP candidate into your portfolio should be a healthy decision.

Four reasons to dance the DRIP with Becton, Dickinson

  • Repeat, repeat, repeat sales. Many of the company's products are for testing and non-elective surgery, so patients can't do without them. Better yet, the bulk of wares are one-time use disposables, so Becton, Dickinson benefits from a lot of repeat purchases. Add in new products, moderate switching costs, and a little pricing power, and it's easy to see how sales have increased each of the past 10 years.
  • Operationally brilliant. Over the past five years, sales have grown at a 7% clip, with net income growing at 14%. Fanatical attention to cost reduction and bringing production closer to major distribution points has led to consistently improving operating margins. Returns on invested capital have eclipsed 15% year in and year out, leaving money for shareholders.
  • Let's partner with Warren Buffett. Back in the first half of 2009, Buffett established a position in Becton, Dickinson. The legendary investor gobbled up 1.2 million shares, a stake worth $85.6 million. Since he announced his position, Buffett has added to his stake in three of the four quarterly periods, increasing his stake by a meaningful 57%.
  • Shares are cheap. Big health care has been out of favor, and shares of Becton, Dickinson are the cheapest of the lot. Check out how the company stacks up against other nuts-and-bolts, solid health-care companies:
Company EV/EBITDA P/E EV/FCF Dividend Yield
Becton, Dickinson 7.7 times 14.8 times 16.3 times 2%
Covidien (NYSE: COV) 7.9 times 16.3 times 15.6 times 2%
C.R. Bard (NYSE: BCR) 8.7 times 17.0 times 14.7 times 0.9%
Thermo Fisher Scientific (NYSE: TMO) 9.9 times 21.0 times 15.0 times 0%

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

Modeling more stability and modest 4% sales growth over the next decade lead me to believe shares are worth north of $90.

Risks to consider

  • Good ole' legislative uncertainty. The company's customers are generally reimbursed for some of their services by the government and insurance companies. With the health-care overhaul set to take hold in a few years, hospitals and insurance companies are still sorting out the manner and level of reimbursements for some treatments. In addition, some of Becton, Dickinson's products may be subject to the 2.3% medical device excise tax.
  • Low-cost knockoffs. Some of the company's products are commodities and are susceptible to cheaper substitutes. Product reliability and patient safety are also key concerns in hospital purchasing decisions that retard the threat of competition.
  • Exposure to Europe and foreign currencies. Still mired in debt and other troubles, Europe remains a customer with risk. During fiscal 2009, 35% of revenue came from Europe. Total non-dollar currency exposure is large, with 55% of revenue coming from outside the U.S.

Foolish bottom line
Becton, Dickinson offers performance and dividend increases as predictable as flu season. Do you think the company should graduate from a Fool DRIP Portfolio candidate to a holding? Chime in below by leaving a comment.

Want to discuss Becton, Dickinson or DRIP investing further? Meet us on the DRIP Investing board here on Fool.com.

Check out a complete catalog of previous Fool DRIP Portfolio articles here.

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.

Fool analyst Bryan Hinmon doesn't owns shares of the companies mentioned in this article . Motley Fool Inside Value has recommended Becton Dickinson, Covidien, and Thermo Fisher Scientific. You can try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.