Meridian Biosciences: A Strong Long Term Investment

As I mentioned in my sell recommendation of Helmerich and Payne (HP), I have been anticipating the opportunity to buy Meridian Biosciences (VIVO) for over 3 years now. According to Morningstar.com, VIVO, "...manufactures disposable immunodiagnostic test kits used for the rapid diagnosis of infectious diseases. Its products aid in the diagnosis of gastrointestinal infections, mononucleosis, ulcers, urinary-tract infections, respiratory infections, and strep throat."

As a Dividend Achiever, VIVO has increased its dividend every year for 16 years in a row according to MergentOnline. Wednesday March 25th, VIVO plumbed a new low after reaching a peak of $37 in April 2008. According to Dow's theory, VIVO has the following upside and downside targets:

Upside-

• $23.33
• $30.16
• $37.00

Downside-

• $11.29
• $ 5.65

Again, considerable attention must be directed at the prospect for the downside risk since we are in a bear market. Anyone buying this stock should be willing to accept that this company can easily go down to the $11.29 or $5.65 level or a loss of 38% and 69% respectively.

The fundamentals about this company are exceptional like little debt, double digit return on equity and return on assets and an astounding dividend growth rate. Your research of this stock might convince you to buy right away. However, the biggest red flag warning about this company is that the dividend payout ratio is very high at 91%. At some point this has to start going lower or the company may have to dip into its cash reserves, borrow or cut the dividend altogether.

Aside from all the homework that you have to do before you consider this stock, I would like to draw your attention to the comparison chart below of VIVO's stock price with that of Google (GOOG). While these companies are in unrelated industries, both GOOG and VIVO appeal to investors as demonstrated by the eerily similar stock price movement. From the IPO of GOOG back in August 19, 2004 to the most recent peak, GOOG and VIVO appreciated 639% and 665% respectively. However, when the downturn came GOOG fell hard and fast down 67% at the low while VIVO is down 56% from the high. The distinction, of course, is that VIVO will pay a portion of earnings to you the shareholder while it struggles through this economy and GOOG will only promise that things are going to get better as the shareholders hope that the price will go up.

I have bought shares of this company for the long term if the stock falls. While you're doing your research of this company, it is hoped that this stock continues to fall so that you can get a better price than mine. As with my purchase of HP, if VIVO miraculously increases in value, I will consider selling only if my gain has been exceptional and a better alternative presents itself at the same time. If you're unclear about my investment philosophy and approach please review my "About This Site" section.

Disclosure: Long VIVO.

Comments

[William Cowie]

Solid, dividend paying stocks that also offer great growth are rare. Primary reason is growth eats cash as growth requires more assets to fund the gorwth. That explains why the GOGG's of this world rarely pay dividends. So, VIVO is a unique company indeed.

As for a dividend cut, I'd be happy to take it if it means the cash is used to fund growth.

Thanks for pointing out this opportunity.

2009 Mar 27 10:11 PM