Baxter (BAX) is a healthcare company which develops, manufactures and markets products related to the medical field.
Baxter’s revenues have grown at an average rate of about 5% over the last 5 years. The number of outstanding shares have also been reduced from about 614M at the end of 2009 to about 549M at the end of 2013. This represents a reduction of about 10.58% over this period which amounts to about 2.75% per year.
But the expenses have gone up by more than revenues resulting in reduced/flat net income and EPS in spite of reduced outstanding shares. Hopefully this is something that is addressed in the near future.
BAX is a dividend challenger with 8 years of consecutive dividend increases. BAX recently increased its dividend from $0.49 to $0.52 which represents about 6.12% increase. With the increased dividend, the payout ratio stands around 56%.
Baxter is also scheduled to spin-off its biopharmaceutical business sometime in mid-2015 which is expected to increase shareholder value in both companies. Morningstar has a fair value of $84.00 and has rated it 4 stars. Marketwatch has an average recommendation of Overweight with an average price estimate of $80.00 which represents an upside close to 9% from current price.
With this information, I purchased 25 shares at $73.50 on 6/16/2014. The total cost including commission comes to $1844.50. With a current dividend of $0.52, this results in a yield of 2.83% and adds $52.00 to my annual dividends. But unfortunately, Based on Baxter’s payout schedule and ex-dividend dates, I will be getting just 1 dividend for 2014. I did not have any exposure to this sector prior to this purchase.
The portfolio page has been updated to reflect this purchase.
Full Disclosure: Long BAX