This week I made a new purchase for my DGI-portfolio: Baxter International Inc (Baxter or BAX). Google Finance has the following description of Baxter.
"Baxter is a global, diversified healthcare company. Baxter develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. The Company operated in two segments: BioScience and Medication Delivery. It is engaged in the medical devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide. These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors’ offices, clinical and medical research laboratories, and by patients at home under physician supervision. Baxter manufactures products in 27 countries and sells the products in more than 100 countries."
In this post I'll highlight the reasons why I think Baxter is a good addition to my portfolio.
Baxter is a dividend challenger according to David Fish' CCC-list and has a streak of 7 years of yearly paid and raised dividends. BAX pays a quarterly dividend and yields around 3%. Its 5 year DGR is 16.4% and its 10 year DGR is 9.6%. It seems that Baxter is accelerating the dividend growth in recent years. Pay-out ratio based on dividends/earnings is a healthy 50% which leaves some room to grow dividends. Baxter also buys back its own shares. In the last 10 years it's reduced its number of outstanding shares by 1% per year, but this has also been accelerating in recent years (3% share reduction per year in the last 4 years).
So fundamentally Baxter seems like a good company. In recent years shareholders yield has improved and considering that I don't have exposure in the healthcare sector BAX is a good choice. Demographic trends both locally and internationally suggest that healthcare costs will rise in the future.
I've added 22 shares of Baxter portfolio for $66.83. This added roughly €30 to my annual dividend income (at today's EUR.USD-rate). My total annual dividend income is now €405 which is also somewhat higher because of a lower EUR.USD-rates in recent days. Baxter is my 10th full position in my DGI-portfolio.
What do you think of Baxter? Do you have your sight on other stocks these days?
"Baxter is a global, diversified healthcare company. Baxter develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. The Company operated in two segments: BioScience and Medication Delivery. It is engaged in the medical devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide. These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors’ offices, clinical and medical research laboratories, and by patients at home under physician supervision. Baxter manufactures products in 27 countries and sells the products in more than 100 countries."
In this post I'll highlight the reasons why I think Baxter is a good addition to my portfolio.
Consistent revenue and earnings growth
Baxter's revenue was $8.1 billion in 2002 and stands at $14.2 billion at the end of 2012. This results in 5.8% CAGR and is about what I look for in a stock (5-10% annual revenue growth). Net income grew even faster. In 2002 Baxter earned $1.26 per share and in 2012 $4.53. This is an CAGR of 13.6% which is awesome. Although this number seems not sustainable, analysts still forecast a healthy 9% future earnings growth.Debt
To be honest: Baxter carries a little more debt than I'd like to see. It's debt/equity-ratio is 1.24 although its interest coverage ratio is more than enough at 25x over. It's credit rating is A which means Baxter has a "strong capacity to meet financial commitments but somewhat susceptible to adverse economic conditions and changes in circumstances.".
Dividend
Baxter is a dividend challenger according to David Fish' CCC-list and has a streak of 7 years of yearly paid and raised dividends. BAX pays a quarterly dividend and yields around 3%. Its 5 year DGR is 16.4% and its 10 year DGR is 9.6%. It seems that Baxter is accelerating the dividend growth in recent years. Pay-out ratio based on dividends/earnings is a healthy 50% which leaves some room to grow dividends. Baxter also buys back its own shares. In the last 10 years it's reduced its number of outstanding shares by 1% per year, but this has also been accelerating in recent years (3% share reduction per year in the last 4 years).
Valuation
- Current P/E-ratio is 16.4x. This is comparative to its historic P/E-ratio.
- Its price/sales-ratio is 2.5x which is somewhat higher than I'd like and is also higher than in 2002 (2.1x).
- Current yield of 3% is above average (average 5 yr yield is 2.4%)
- Current price is between the 52wk low and 52wk high.
- As of today Baxter's YTD is 7%. It's underperformed the S&P% by 14% so it could be ready for a nice pull-back.
Decision
So fundamentally Baxter seems like a good company. In recent years shareholders yield has improved and considering that I don't have exposure in the healthcare sector BAX is a good choice. Demographic trends both locally and internationally suggest that healthcare costs will rise in the future.I've added 22 shares of Baxter portfolio for $66.83. This added roughly €30 to my annual dividend income (at today's EUR.USD-rate). My total annual dividend income is now €405 which is also somewhat higher because of a lower EUR.USD-rates in recent days. Baxter is my 10th full position in my DGI-portfolio.
What do you think of Baxter? Do you have your sight on other stocks these days?
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