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Rarely does one get the chance to buy such high quality stocks as Baxter (NYSE:BAX) at reasonable prices. Acting in several health segments, from recombinant therapies to renal diseases (end stage, hemodialysis and especially, peritoneal dialysis), Baxter has had stable revenue growth over the years.

Baxter is an excellent company by many measures, starting with a ROE over 32% on a price/book of just 4.3. Baxter not only has a decent dividend yield, at 2.6% (its present dividend of $0.335 annualizes to $1.34), but has also shown continued growth as we can see below (red box). Amazingly, Baxter doesn't stop there and it's also heavily buying back its own stock (green box shows the reduced share count) (source: Baxter's 10-K):

(click to enlarge)

Also impressive, in spite of the large shareholder remuneration implied in both the dividends and share buybacks, BAX's net debt continues to be low at just $2.9 billion. Baxter's price/book is also a pleasant surprise taking into account how much stock it has already bought back (buying back stock over book reduces equity quite a lot).

Baxter's market performance has been flattish over the last 5 years, even while earnings grew and the share count dropped. This made for a much more attractive valuation today, with Baxter commanding a trailing P/E of 13 and a 2012 forward P/E of 11.4.

(click to enlarge)BAX Chart

BAX data by YCharts

Conclusion

Baxter is an extraordinary company, very shareholder-friendly in its treatment of shareholders with increased dividends and consistent buybacks. Indeed, it seems like the type of company Warren Buffett himself wouldn't mind owning. The flattish performance over the last few years has produced a major bargain that would sit well in anyone's long term income portfolio.

As a small aside, I've once considered that Affymax (OTCQB:AFFY) could be the perfect acquisition target for Baxter. I remain convinced that it might happen, as Baxter is fond of making many complementary acquisitions and Affymax fits perfectly with its peritoneal dialysis business.

Source: Baxter: Another High Quality Name For Your Income Portfolio