With instability in the market making investors nervous, it’s worth thinking about protecting your portfolio from the full impact of a bear market. Loading up on a few stable stocks now could make a world of difference — and that’s why today I’ll be discussing Becton, Dickinson ( BDX 2.42% ).
BD is a rock-solid stock because it’s a highly diversified and profitable business tightly linked to the global healthcare system. Whether it’s surgical tools, blood analyzers, coronavirus tests, or reagents for biomedical research, BD sells it all — and at a mind-boggling volume. Let’s take a look at why all this (and more) makes BD an attractive option for downside protection.
This medical supply giant isn’t about to go anywhere
In my view, BD is a safe stock because both healthcare systems and anyone doing biomedical research have an ongoing and high level of need for its products and services.
BD’s revenue is diversified across three segments: medical, life sciences, and interventional. Of these, the medical segment is the largest, accounting for $9.5 billion of the company’s total intake of $20.2 billion for 2021. Recurring revenue for sales of must-have goods — such as sample-collection vials, catheters, and anesthesia sets — means that income is unlikely to shrink anytime soon.
In fact, the company’s annual revenue has grown by a decent 67% over the past five years. That’s hardly in growth stock territory, but for investors seeking stability, it’s more than enough to demonstrate that demand for the company’s offerings is healthy. Thanks to its position as one of the healthcare sector’s primary suppliers, it benefits from economies of scale in its manufacturing operations, thereby ensuring its quarterly cost of goods sold (COGS) doesn’t increase as a proportion of revenue over time even as revenue grows.
Plus, there’s little need to spend a lot on research and development (R&D) for the segment since only a finite amount of innovation can go into the design of many of these basic medical consumables. Currently, R&D only accounts for 6.61% of its annual revenue, and its proportion hasn’t increased by much over time.
Nonetheless, it’s important to remember that no company is immune to headwinds. As a result of decreasing demand for its coronavirus diagnostics, revenue fell by 6% year over year in the first quarter of 2022. Such a drop is likely to be temporary as BD is always planning to launch new product lines and market them to its existing customer base to keep expanding over time.
It’s already a safe harbor in the storm
Another big point in this stock’s favor is that it’s already demonstrating its stability in the face of economic and market turbulence. Amid this year’s downbeat market, BD’s stock has continued to grow, and its shares have outperformed the market over the past 10 years (although not over shorter periods).
One reason BD is a relatively stable stock is that it pays a small but steadily increasing dividend. Right now, its dividend has a forward yield of 1.3%. Over the last 50 years, management has opted to hike the dividend 50 times, making it a Dividend King. Over the last decade, the dividend has registered an increase of 93.3% — more than enough to reward patient investors.
So it’s safe to say that management has felt that the company’s financial situation will continue to be stable enough into the future to justify ever-higher payouts to shareholders. When it comes to all-weather green flags for investors, that’s certainly a big one. And while it’s unlikely for BD’s stock to outperform the market, it definitely speaks to the enduring appeal of its offerings and the staying power of the company.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.