Analyzing a company’s return on invested capital provides clues about a company’s moat and ability to generate economic value for its capital providers. Bard has delivered strong returns of about 20% for most of the last 10 years (recent years were weighed down by accounting noise). By focusing on profitable niches and developing protected medical devices, Bard has developed strong competitive advantages.
Source: Simply Safe Dividends
Bard’s balance sheet further strengthens the safety of its dividend. The company has about $1 billion in cash compared to just $1.1 billion in debt. To put it in perspective, Bard’s cash on hand covers nearly 15 years of dividend payments at the current rate.
Overall, Bard’s dividend payment is about as safe as they get. The company’s extremely low payout ratio, recession-resistant products, consistent free cash flow generation, strong return on invested capital, and healthy balance sheet.
Dividend Growth Score
Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.
Bard’s Dividend Growth Score of 73 indicates that the company has very strong dividend growth potential. The company is a member of the dividend aristocrats list and most recently raised its dividend by 9% in mid-2015. Bard has now raised its dividend for over 40 straight years and will be a dividend king in less than a decade.
As seen below, Bard has increased its dividend at a 6.3% annualized rate over the past decade. Bard could raise its dividend by a double-digit annual rate given its low payout ratio and healthy fundamentals, but management remains focused on reinvesting for growth.
For now, dividend growth seems likely to align with earnings growth, which we expect to be in the upper-single digits.
Source: Simply Safe Dividends
Valuation
BCR’s stock trades at 19.5x forward earnings estimates and has a dividend yield of 0.5%, which is somewhat below its five-year average dividend yield of 0.66%.
The company’s relatively low dividend yield reflects its focus on growth investments. Bard’s free cash flow per share has grown by 8.3% per year over the last five years, and we expect high-single digit growth to continue.
Under our assumptions, the company’s stock appears to offer total return potential of about 9-11% per year. We think Bard’s stock is about fairly valued today.
Conclusion
C R Bard Inc (NYSE:BCR) appears to be an excellent business and an example of a blue chip dividend stock. However, the stock’s 0.5% dividend yield is just too low for us to get more excited about the investment today. While the stock isn’t appropriate for investors living off dividends in retirement, its total return potential could be appealing for investors maintaining a much longer time horizon.
Disclosure: None
