08 Mar 2014 22:24
Tags build_diversity
All stock information will be culled from David Fish’s “Dividend Champions List” at http://dripinvesting.org/ which provides a list of all stocks that have continually grown their annual dividend payouts for 5 years or more in a row.
Welcome to Part 3 of our “Build Diversity” series. Today we will be looking at the Healthcare sector.
To start with a list we will use basic search criteria of:
- min div yield near 2% or greater
- payout ratio less than 65%
- debt to equity ratio less than 1
Company | Symbol | Yrs of Div Growth | Div Yield | Payout Ratio | TTM P/E | Debt/Equity |
---|---|---|---|---|---|---|
Becton Dickinson | BDX | 42 | 2.02% | 46.68% | 23.15 | 0.79 |
Bristol-Myers Squibb | BMY | 5 | 2.88% | 93.51% | 32.45 | 0.49 |
Cardinal Health | CAH | 17 | 1.78% | 104.31% | 58.64 | 0.62 |
Covidien plc | COV | 7 | 1.88% | 37.54% | 20.01 | 0.54 |
Johnson & Johnson | JNJ | 51 | 2.98% | 54.89% | 18.39 | 0.22 |
Medtronic Inc. | MDT | 36 | 1.98% | 29.95% | 15.12 | 0.66 |
National Healthcare Corp. | NHC | 10 | 2.46% | 34.32% | 13.94 | 0.02 |
Owens & Minor Inc. | OMI | 16 | 2.77% | 56.14% | 20.26 | 0.21 |
Smith & Nephew plc | SNN | 8 | 1.84% | 44.93% | 24.41 | 0.09 |
Span-America Medical Systems | SPAN | 15 | 2.82% | 33.14% | 11.74 | 0.00 |
Steris Corp. | STE | 9 | 1.83% | 32.81% | 17.93 | 0.51 |
Teva Pharmaceutical Indus | TEVA | 14 | 2.86% | 90.64% | 31.65 | 0.55 |
Utah Medical Products | UTMD | 10 | 1.88% | 36.90% | 19.63 | 0.18 |
The search yielded 13 stocks. Yet, one thing that immediately jumps out is the number of high valuations as seen in high P/E ratios such as Cardinal Health with a P/E of 58. As a second filter we will add the criteria of a P/E ratio less than the industry average of 21.88 which now reduces the results to 8 companies.
Company | Symbol | Yrs of Div Growth | Div Yield | Payout Ratio | TTM P/E | Debt/Equity |
---|---|---|---|---|---|---|
Covidien plc | COV | 7 | 1.88% | 37.54% | 20.01 | 0.54 |
Johnson & Johnson | JNJ | 51 | 2.98% | 54.89% | 18.39 | 0.22 |
Medtronic Inc. | MDT | 36 | 1.98% | 29.95% | 15.12 | 0.66 |
National Healthcare Corp. | NHC | 10 | 2.46% | 34.32% | 13.94 | 0.02 |
Owens & Minor Inc. | OMI | 16 | 2.77% | 56.14% | 20.26 | 0.21 |
Span-America Medical Systems | SPAN | 15 | 2.82% | 33.14% | 11.74 | 0.00 |
Steris Corp. | STE | 9 | 1.83% | 32.81% | 17.93 | 0.51 |
Utah Medical Products | UTMD | 10 | 1.88% | 36.90% | 19.63 | 0.18 |
For companies that have increased dividends for more than 20 consecutive years we have JNJ, & MDT. For payout ratios, JNJ and OMI are the only companies higher than 50% but even at these levels there is room to grow dividends further. Looking at debt, all 8 stocks sport a low debt/equity ratio.
Looking at average dividend growth significant differences begin to appear. While most show decent growth across the board two look weak. When looking at potential dividend growth companies it is not necessary to pursue high dividend yields as strong growth rates can effectively compensate over time. Unfortunately UTMD & NHC, with their low yield and low growth, are unattractive and removed from the list.
Company | Symbol | 1 Yr DGR | 3 Yr DGR | 5 Yr DGR | 10 Yr DGR |
---|---|---|---|---|---|
Covidien plc | COV | 22.00% | 15.52% | 12.25% | n/a |
Johnson & Johnson | JNJ | 7.92% | 7.07% | 7.61% | 10.84% |
Medtronic Inc. | MDT | 6.93% | 7.89% | 11.56% | 14.87% |
National Healthcare Corp. | NHC | 3.33% | 4.71% | 6.62% | n/a |
Owens & Minor Inc. | OMI | 9.09% | 10.75% | 12.48% | 15.20% |
Span-America Medical Systems | SPAN | 9.28% | 9.83% | 8.65% | 14.24% |
Steris Corp. | STE | 11.11% | 15.44% | 23.36% | n/a |
Utah Medical Products | UTMD | 2.07% | 1.57% | 1.71% | n/a |
Our quick search has yielded 6 potentially attractive examples to add to your portfolio. Like any investment you should research further before purchasing any equity as this report is nothing more than a result of some surface level values and ratios.
Covidien plc (COV): Covidien plc develops, manufactures, and sells healthcare products for use in clinical and home settings worldwide.
Johnson & Johnson (JNJ): Johnson & Johnson, together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics.
Medtronic Inc. (MDT): Medtronic, Inc. manufactures and sells device-based medical therapies worldwide. The company operates in two segments, Cardiac and Vascular Group, and Restorative Therapies Group.
Owens & Minor Inc. (OMI): Owens & Minor, Inc., together with its subsidiaries, operates as a healthcare logistics company. The company offers supply chain assistance to the providers of healthcare services; and the manufacturers of healthcare products, supplies, and devices.
Span-America Medical Systems (SPAN): Span-America Medical Systems, Inc. manufactures and distributes various therapeutic support surfaces and related products for the medical, consumer, and industrial markets primarily in the United States and Canada. The company operates in two segments, Medical and Custom Products.
Steris Corp. (STE): STERIS Corporation develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and procedural support products and services for healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide. The company operates in three segments: Healthcare, Life Sciences, and STERIS Isomedix Services.
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