This article is about Danaher Corp. (NYSE:DHR) and why it's a great growth investment that's being considered for The Good Business Portfolio. Danaher Corporation designs, manufactures and markets professional, medical, industrial and commercial products and services. While I was looking at the companies some of the Eaton Vance funds had in them I saw Danaher Corp. in the top ten and when I checked it out the great cash flow and growth were obvious. Danaher Corp. will most likely be the next company purchase of The Good Business Portfolio. Danaher Corp. is in a good growing business of high tech products in the medical and telecommunications markets. Fundamentals of Danaher Corp. will be reviewed in the following topics below The Good Business Portfolio Guidelines, Total Return and Yearly Dividend, Last Quarter's Earnings, Company Business and Takeaways And Recent Portfolio Changes.
Good Business Portfolio Guidelines
Danaher Corp. passes 9 of 10 Good Business Portfolio Guidelines. These guidelines are only used to filter companies to be considered in the portfolio. For a complete set of the guidelines, please see my article "The Good Business Portfolio: All 24 Positions." These guidelines provide me with a balanced portfolio of income, defensive, momentum, and growing companies that keeps me ahead of the Dow average.
Danaher Corp. is a large-cap company with a capitalization of $63.9 billion. The large size of Danaher Corp. gives it the muscle plus its large cash flow to increase the business going forward. The foreign part of Danaher Corp. also provides growth opportunities for expansion of the business.
Danaher Corp. has a dividend yield of 0.70% which is very low for the market. The dividend has been increased for 7 of the last ten years and its dividend is very safe. Danaher Corp. is therefore not a good choice for the dividend growth investor. The average payout ratio is low at 7% over the past five years. After paying the low dividend this leaves plenty of cash at $3.17 Billion remaining for investment in new company purchases and business expansion.
Danaher Corp. cash flow is great at $3.650 Billion less dividends at $480 Million or $3.170 Billion for above average growth and business expansion. It is this high cash flow which is driving Danaher Corp. forward as they buy other companies..
I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.1% of the portfolio as income and I need 1.9% capital gain in addition for a yearly distribution of 5%. Danaher Corp. has a three-year CAGR of 10% well above my overall requirement. Looking back five years $10,000 invested five years ago would now be worth $18,400 today (from S&P Capital IQ). This makes Danaher Corp. a good investment for the aggressive growth investor with the low dividend and large cash flow for above average growth.
Danaher Corp. S&P Capital IQ has a three-star rating or hold with a price target of $96.00. This makes Danaher Corp. under priced at present with the potential of 4% growth within a year to the target. In the long term Danaher Corp. above average CAGR of 10% and it's company business in the rising medical market make the company a good investment that pays a low dividend and has moderate great growth going forward.
Total Return and Yearly Dividend
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of The Good Business Portfolio. Danaher Corp. had a large total return above the Dow baseline in my 39.5 month test period. I chose the 39.5 month test period (starting January 1, 2013) because it includes the great year of 2013, the moderate year of 2014, the small loss year of 2015 and the slightly positive year of 2016 YTD to see how the company does in good and bad markets. I have had comments about why I do not compare the total return to the S&P 500 average. I use the Dow average because the Good Business Portfolio has six Dow companies in it and is weighted more to the Dow average than the S&P 500. Modeling the Dow average is not an objective of the portfolio but just happened by using the 10 guidelines as a filter for company selection. The dividend is low at 0.70% and has been increased for 7 of the last years but very slowly. The large over performing total return and low dividend makes Danaher Corp. appropriate for the aggressive growth investor.
DOW's 39.5 month total return baseline is 36.58%.
39.5 Month total return
Difference from DOW baseline
Yearly Dividend percentage
Last Quarter's Earnings
For the last quarter Danaher Corp. reported earnings on January 21, 2016 that meet expected at $1.27 compared to last year at $1.04 and expected at $1.27. Revenue increased 3.0% but missed expected total revenue by $103 Million. This was a good report showing the result of the of the improving economy and new add on companies that were bought during the year. Earnings for the next quarter will be released on April 21, 2016 and are expected to be at $1.03 compared to the last year at $0.93. Management guided forward for 10% growth for the next fiscal year.
Danaher Corporation designs, manufactures and markets professional, medical, industrial and commercial products and services. It operates in five segments: Test & Measurement; Environmental; Life Sciences & Diagnostics; Dental, and Industrial Technologies. The Test & Measurement segment offers test, measurement and monitoring products. The Environmental segment products and services help protect the global water supply, facilitate environmental stewardship and enhance the safety of personal data. The Company's diagnostics business offers analytical instruments, reagents, consumables, software and services. The Dental segment provides products that are used to diagnose, treat and prevent disease and ailments of the teeth, gums and supporting bone. The Company's Industrial Technologies solutions help protect the world's food supply, improve packaging design and quality, verify pharmaceutical dosages and authenticity and power innovative machines. The 10% projected growth each year and the opportunity to buy other companies allows Danaher Corp. the capability to continue its strong growth up cycle. Also the business grows faster than the economy in the medical field. The buy of Pall Inc. is still in the process of being integrated and reducing costs, which should flow to the bottom line. In 2015 Danaher Corp. bought 14 acquisitions for a total of $14.5 Billion. Danaher Corp. is also in the process of spinning off a new company Fortive to be completed in the third quarter of this year.
In summary I'll use a quote from the January earnings call by management "So to wrap up, we're pleased with our record fourth quarter results. During the quarter, the team delivered double-digit earnings growth, significantly expanded core operating margins, generated record free cash flow and announced several bolt-on acquisitions. Despite the more challenging economic landscape particularly in our industrially-oriented markets, we continue to execute well."
Takeaways And Recent Portfolio Changes
Danaher Corp. is a great growth choice considering its high total return beat of the DOW and large cash flow of $3.17 Billion. Also Danaher Corp. Inc. has a 10% CAGR going forward, a strong growth prospective. The good Business Portfolio is in the process of selling off its position in Novartis (NYSE:NVS) and Danaher Corp. will replace NVS after NVS has been sold. If you don't already have a position in the medical technology sector Danaher Corp. may be worth a position for your aggressive growth segment of your portfolio.
Bought Some more Omega Health Investors (NYSE:OHI) , now at 3.7% of The Good Business Portfolio. I intend to keep adding to OHI until its 4% of the portfolio a full position and watch it grow. The dividends are being reinvested in shares of OHI. OHI just increased their dividend by $0.01/quarter or 1.8% for a yearly increase of 7.2% if these quarterly increases continue. From the last earnings report OHI has a FFO of $0.72 giving it the ability to increase the dividend for many quarters to come.
Trimmed NVS to 0.4% of the portfolio, there growth and projections going forward do not look promising. Danaher Corp. will most likely replace NVS in the next few weeks.
Started a small position in Hormel Food Corporation at 0.3% and will see what the next quarter brings before increasing the position.
The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. Home Depot (NYSE:HD) is 8.4% of portfolio, Johnson and Johnson (NYSE:JNJ) is 8.4% of the portfolio, Altria Group Inc.(NYSE:MO) is 7.4% of the portfolio, Boeing (NYSE:BA) is 7.9% of the Portfolio and L Brands (NYSE:LB) is 6.3% of the portfolio, therefore HD and JNJ are now in trim position with Altria Group Inc., L Brands Inc. and Boeing getting close. Boeing is going to be pressed to 10% of the portfolio because of it being cash positive on individual 787 plane costs, announced in the last quarter earnings call.
For the total Good Business Portfolio see my recent article on 2015 fourth-quarter performance for the complete portfolio list and performance. Become a follower and you will get each quarters performance after the earnings season is over.
I have written individual articles on CAB, JNJ, EOS, LB, GE, IR, MO, BA, ADP, Omega Health Investors and HD that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest please look for them in my list of previous articles.
Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.
Disclosure: I am/we are long BA, HD, JNJ, LB, MO, OHI, ADP, HRL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.