A Look at Baxter International

I recently purchased 75 shares of Baxter International @ $71.03. Here’s how the numbers stack up.

Average Dividend Yield Analysis*

BAX:US
Year	High Price	Low Price	1Q div.	2Q div.	3Q div.	4Q div.	Annual Dividend	High Yield	Low Yield
2003	$31.32	$18.18					$0.582	3.20%	1.86%
2004	$34.84	$27.10					$0.582	2.15%	1.67%
2005	$41.07	$33.08					$0.582	1.76%	1.42%
2006	$48.54	$35.12					$0.582	1.66%	1.20%
2007	$61.09	$46.07	$0.582	$0.168	$0.168	$0.168	$1.09	2.36%	1.78%
2008	$71.53	$47.41	$0.218	$0.218	$0.218	$0.218	$0.87	1.84%	1.22%
2009	$60.99	$45.46	$0.26	$0.26	$0.26	$0.26	$1.04	2.29%	1.71%
2010	$61.88	$40.25	$0.29	$0.29	$0.29	$0.29	$1.16	2.88%	1.87%
2011	$62.50	$47.55	$0.31	$0.31	$0.31	$0.31	$1.24	2.61%	1.98%
2012	$68.91	$48.98	$0.335	$0.335	$0.335	$0.45	$1.46	2.97%	2.11%
2013			$0.45	$0.45	$0.49	$0.49	$1.88
2014			$0.49	$0.49	$0.49	$0.49	$1.96
Stock prices are per calendar year.							10y ave	2.37%	1.68%
Dividends are recorded in the quarter they were paid.							5y ave	2.52%	1.78%
							3y ave	2.82%	1.99%
							5y	$77.86	$110.18
							3y	$69.50	$98.49
						Super Cheap		$61.22

The table shows the 3 year average dividend yield to be 2.82% ((2.88% + 2.61% + 2.97%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $1.96, one would have to pay $69.50 for a 2.82% dividend yield.

Buying the stock at its low in 2003 would have earned you an initial yield of 3.20%. Using the current annual dividend, that corresponds to a stock price of $61.21 today (see “super cheap” price in the table above).

Graham Price

BAX’s 2010, 2011 and 2012 EPS were $2.39, $3.88 and $4.18. 3Y Ave EPS = $3.48.

BAX’s BV is $12.83.

Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $31.71

Cyclically Adjusted Price to Earnings Ratio

BAX’s 10Y Ave EPS = $2.56

CAPE = Stock Price / 10Y Ave EPS = $92.30 / $3.95 = 28.5

A CAPE below 20 is good.

Conclusion

I made my decision to buy BAX based on the 5 and 3 year average dividend yield numbers.  However, Graham Price and CAPE indicate the stock is not a bargain.

BAX increased EPS from $1.53 in 2003 to $4.18 in 2012. That’s an increase of 2.7 times over 9 years. 2013 and 2014 EPS are estimated at $4.70 and $5.20, respectively.

You can also read Compounding Income's recent purchase of BAX.

*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.

New Purchase - Baxter and Intact Financial

Yesterday, I bought shares of IFC-T and BAX-N.

IFC: 100 shares @ $58.60 + $9.95 commission

BAX: 75 shares @ $70.9 + $9.95 commission

I added $5,900 in new capital to fund part of my purchases.

Intact Financial will add $176.00 to my forward 12-month dividends.

Because I have very little cash left in my RSP, Baxter is held in my TFSA which means I’ll be paying a 15% withholding tax on the dividend. This purchase will add $124.95 to my forward 12-month dividends: ($147 – 15% = $124.95).

My forward 12-month dividends now stand at $4,520.13.

A Look at Deere

As promised several weeks ago, below is my analysis of Deere.

Since purchasing 25 shares on April 15^th, the price has shot up about 10%. Makes me wonder if I should have bought more…

Average Dividend Yield Analysis*

DE-N
Year	High Price	Low Price	1Q div.	2Q div.	3Q div.	4Q div.	Annual Dividend	High Yield	Low Yield
2001	$23.06	$16.75	$0.110	$0.110	$0.110	$0.110	$0.44	2.63%	1.91%
2002	$25.80	$18.75	$0.110	$0.110	$0.110	$0.110	$0.44	2.35%	1.71%
2003	$33.71	$18.78	$0.110	$0.110	$0.110	$0.110	$0.44	2.34%	1.31%
2004	$37.47	$28.36	$0.110	$0.140	$0.140	$0.140	$0.53	1.87%	1.41%
2005	$37.21	$28.50	$0.140	$0.155	$0.155	$0.155	$0.605	2.12%	1.63%
2006	$50.70	$33.45	$0.195	$0.195	$0.195	$0.195	$0.78	2.33%	1.54%
2007	$93.74	$45.12	$0.220	$0.220	$0.220	$0.250	$0.91	2.02%	0.97%
2008	$94.89	$28.50	$0.250	$0.250	$0.280	$0.280	$1.06	3.72%	1.12%
2009	$56.87	$24.51	$0.280	$0.280	$0.280	$0.280	$1.12	4.57%	1.97%
2010	$84.85	$48.33	$0.280	$0.280	$0.300	$0.300	$1.16	2.40%	1.37%
2011	$99.80	$59.92	$0.350	$0.350	$0.410	$0.410	$1.52	2.54%	1.52%
2012	$89.70	$80.88	$0.410	$0.460	$0.460	$0.460	$1.79	2.21%	2.00%
2013			$0.460	$0.510	$0.510	$0.510	$1.99
2014			$0.510	$0.510	$0.510	$0.510	$2.04
Stock prices are per calendar year.							12y ave	2.59%	1.54%
Dividends are recorded in the quarter they were paid.							5y ave	3.09%	1.59%
							3y ave	2.38%	1.63%
							5y	$66.07	$127.94
							3y	$85.59	$125.26
						Super Cheap		$44.64

The table shows the 3 year average dividend yield to be 2.38% ((2.40% + 2.54% + 2.21%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $2.04, one would have to pay $85.59 for a 2.38% dividend yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 4.57%. Using the current annual dividend, that corresponds to a stock price of $44.64 today (see “super cheap” price in the table above).

Graham Price

DE’s 2010, 2011 and 2012 EPS were $4.35, $6.63 and $7.63. 3Y Ave EPS = $6.20.

DE’s BV is $19.21.

Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $51.78

Cyclically Adjusted Price to Earnings Ratio

DE’s 10Y Ave EPS = $3.95

CAPE = Stock Price / 10Y Ave EPS = $92.30 / $3.95 = 23.3

A CAPE below 20 is good.

Conclusion

My three metrics show that DE is currently “expensive”. I bought at $84.14, slightly below the 3 year Average Dividend Yield.

DE increased EPS from $0.67 in 2002 to $7.63 in 2012. That’s an increase of 11.4 times over 10 years. 2013 and 2014 EPS are estimated at $8.50 and $9.15, respectively.

*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.