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Two Dividend-Growth Stocks, One Year Later

|Includes: Becton, Dickinson and Company (BDX), FDS, HRS, SPY, WM, XLI, XLV

What kind of finicky, obsessive-compulsive, fact-checking maniac looks back at his own articles, written a year ago, to document how the stocks actually performed?

Me. As I noted last month, I’ve been writing on Seeking Alpha about a year now, so after the anniversary date of articles, I’m scribbling quick updates on fundamentals, dividend growth, total returns and so forth – along with a link to the original article so you can keep me honest.

Here’s anniversary update number two.

Last September, I wrote five articles, which is a lot for me. These included profiles of Dividend Aristocrat and Warren Buffett stock Becton Dickinson (NYSE:BDX), a big-cap leader in medical, diagnostic and other healthcare products, and dividend-grower Waste Management (NYSE:WM), the nation’s largest trash company.

Let’s see how they’ve done so far.

As was true in September 2009, BDX is definitely my favorite stock with a funny name, though I’m warming up to J.M. Smucker (NYSE:SJM). Since last year’s article, BDX bumped its dividend 12%, continuing nearly four decades of increases. And though its 2% yield still won’t excite pure income investors, you can count on BDX to boost the dividend again later this year.

More good news: BDX valuations and fundamentals still look attractive. The P/E sits near a 10-year low, cash is gushing and return on equity weighs in at 24%, with only 30% debt-to-equity.

The lukewarm news? Revenue barely budged over the past year, and while earnings growth topped double digits, some BDX results fell short of expectations.

So the reason those BDX valuations still look attractive is because the stock didn’t go up much: less than 9%, plus the small dividend. This compares to 12% for the S&P 500, though it’s about in line with the S&P Healthcare Sector ETF (NYSEARCA:XLV), which also climbed nearly 9%. Both these benchmarks were cited in the original article.

WM is a whole different story, so let’s get to it.

Since my September 2009 article WM hiked its dividend 9%, marking half a dozen consecutive years of increases, and management affirmed its commitment and capacity to “return cash to shareholders.” Current yield: 3.4%

The article (and a follow-up in December) pointed out that most of WM’s business is recession-resistant residential and commercial trash collection and disposal. But there are also cyclical revenue streams from construction debris collection, scrap recycling and waste-to-green-energy generation.

With the economy exiting the dumps, those cyclical businesses bottomed, giving the stock a boost. WM climbed over 23%, plus dividends, vs. about 12% for the S&P 500. WM slightly lagged the S&P Industrial Sector ETF (NYSEARCA:XLI), however. Both these benchmarks were cited in the original article.

The stock likely moved in anticipation of a WM business recovery. WM revenues and operating income began turning up this year, but net income is still depressed. This pushed WM’s P/E toward a 5-year high of 18 and kept its payout ratio near 60%.

WM’s return on equity is a solid 17%, but debt is higher than equity. Despite increasing its debt load, WM scores good grades for financial health from both Morningstar and the new SA MarketGrader app.

As it stands, I’m holding onto my positions in BDX and WM. Both report earnings in the next two to three weeks. Pay particular attention to whether revenue and earnings outlooks stay sluggish or start stepping up.

In addition to my BDX and WM articles, September 2009 brought “9 Great Excuses to Be Stubbornly Bullish,” a rundown of research that suggested optimists should stay optimistic. The stock market didn’t go straight up since then, but is double-digits higher now, about 12%.

Next, “This Market to Workers: ‘Welcome to the Jungle’” described why our horrific unemployment problem could persist, and why stocks might be completely cold-hearted about it. The job market still stinks, but profits and stock prices have moved higher anyway.

“Stocks That Raise Dividends Outperform,” my first of several articles on that theme, summarized a dividend-growth research study, and discussed some popular dividend ETFs. The benefits of rising dividends are as evident now as then, but the specific ETF’s in the article didn’t stick to the script I outlined.

Finally, those who like reading happy stories might check out last month’s update on Factset Research Systems (NYSE:FDS) and Harris Corp. (NYSE:HRS).

Disclosure: Long BDX, FDS, HRS, WM