U.S. markets open in 6 hours 10 minutes
  • S&P Futures

    3,650.75
    +27.50 (+0.76%)
     
  • Dow Futures

    29,862.00
    +233.00 (+0.79%)
     
  • Nasdaq Futures

    12,367.75
    +90.75 (+0.74%)
     
  • Russell 2000 Futures

    1,840.10
    +20.00 (+1.10%)
     
  • Crude Oil

    45.22
    -0.12 (-0.26%)
     
  • Gold

    1,795.20
    +14.30 (+0.80%)
     
  • Silver

    23.15
    +0.56 (+2.47%)
     
  • EUR/USD

    1.1972
    +0.0037 (+0.31%)
     
  • 10-Yr Bond

    0.8440
    0.0000 (0.00%)
     
  • Vix

    20.57
    -0.27 (-1.30%)
     
  • GBP/USD

    1.3378
    +0.0046 (+0.35%)
     
  • USD/JPY

    104.3350
    +0.0110 (+0.01%)
     
  • BTC-USD

    19,512.68
    +112.91 (+0.58%)
     
  • CMC Crypto 200

    384.03
    +19.43 (+5.33%)
     
  • FTSE 100

    6,305.62
    +39.43 (+0.63%)
     
  • Nikkei 225

    26,787.54
    +353.92 (+1.34%)
     

It Might Not Be A Great Idea To Buy Becton, Dickinson and Company (NYSE:BDX) For Its Next Dividend

Simply Wall St
·4 min read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Becton, Dickinson and Company (NYSE:BDX) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 8th of September in order to be eligible for this dividend, which will be paid on the 30th of September.

Becton Dickinson's next dividend payment will be US$0.79 per share. Last year, in total, the company distributed US$3.16 to shareholders. Based on the last year's worth of payments, Becton Dickinson stock has a trailing yield of around 1.3% on the current share price of $246.19. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Becton Dickinson has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Becton Dickinson

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Becton Dickinson paid out 109% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 40% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Becton Dickinson's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Becton Dickinson's earnings per share have dropped 14% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Becton Dickinson has lifted its dividend by approximately 7.9% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Becton Dickinson is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Should investors buy Becton Dickinson for the upcoming dividend? It's not a great combination to see a company with earnings in decline and paying out 109% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Becton Dickinson as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 3 warning signs for Becton Dickinson (of which 1 doesn't sit too well with us!) you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.