Somehow, the early part of my Friday evening took me to some kind of investor’s conference where people just bounce ideas and strategies off of each other for two hours. I was talking to a guy who was talking in a very deservedly exciting fashion about how he was saving $1,200 per month, and how it didn’t really matter if he picked the best stocks because he could see how the high savings rate was quickly starting to change his life. About fifteen minutes or so into the conversation, we were joined by another man who said, in effect, “It’s impossible to spend less than what you make per month.”
At that point, the guy I was previously talking to ditched the conversation and left (think Carlton after Will shows up).
Because Becton Dickinson had been on my mind lately, I couldn’t help plugging it into a calculator to see what a $12,500 investment in good ‘ole BDX would have turned into since 1985. Answer: $720,691. I think it is a shame that, every April, the major websites like MSN Money and Yahoo Finance think they are being prudent by saying, “Try and save 10% of your tax refund for an investment.” That advice isn’t wrong—it’s entirely appropriate if having fun now is your objective. But, if you bring an intensity to your game, and building long-term wealth is something that is at the top of your totem pole, then you have to look at windfall events as times to make huge strides and advances towards your goals by socking away nearly of it. An investment or two in the $10,000 range every seven or eight years could be absolutely life-changing.
And, if you’re not in a position to make a large lump-sum investment? That’s perfectly fine, too. The three variables of wealth building are always: amount you have to invest, time, and the growth rate. If creating $720,000 in Becton Dickinson stock had been your objective over the past 29 years, the requirement would have been this: you would have had to set aside $123 per month, every month for 348 months straight to get to that three-quarters-of-a-million kitty.
As you can see from the graph, Becton Dickinson is just this wildly impressive company that keeps giving shareholders 10% dividend raises or more for half-a-century, but because the company manufactures medical devices and clinical tools, and therefore isn’t as accessible to the lay investor, it doesn’t get all that much attention.
Yet, its business performance has been about as beautiful as looking at a chart of The Coca-Cola company itself. Only twice in the past two decades did Becton Dickinson fail to grow profits in an annual fashion, and one of the years was 2010, in which case the $4.95 per share profits in 2009 gave way to $4.94 per share profits in 2010. Not exactly a polar bear plunge, there.
The dividend has septupled since 1998, yet it just doesn’t get talked about because it never appears at a discount (at 17-19x earnings, people figure, “Heck, I’ll just buy Johnson & Johnson”, which works out just fine, but explains why Becton Dickinson doesn’t work its way into portfolios as much).
It’s probably the best stock out there that doesn’t sell a product that is readily identifiable with investors. Things like IBM, Disney, and Visa all have products you can easily visualize. Becton Dickinson makes reagents that fight infectious diseases; not exactly the same warm and fuzzy feeling there. The company’s payout ratio is still only at a third, and its profits are still growing at north of 10%. The half-century story of regular growth isn’t over yet.
There’s always an answer to solving a life problem in a manageable way—in this case, a very real solution to the wealth-building problem can be solved by spending $100 less than you make per month, putting the difference into Becton Dickinson, and wash, rinse, repeat for a very nice long time.
Originally posted 2014-06-07 11:07:29.