Dividend Aristocrats In Focus: West Pharmaceutical Services

Every year, the official Dividend Aristocrats list is updated with new companies that join the ranks, as well as others that are removed due to a dividend cut or a failure to raise dividends over the past year.

In turn, we provide an individual analysis of all Dividend Aristocrats each year. The next up in our annual Dividend Aristocrats In Focus series is West Pharmaceutical Services (WST).

The company has seen its shares explode upwards in recent years, based mainly on a combination of strong earnings growth and the market’s admiration for said earnings growth, which has resulted in substantial multiple expansion tailwinds.

West Pharmaceutical has also raised its dividend for 25 consecutive years, which means it is among the newest additions to the Dividend Aristocrats list.

West Pharmaceutical is a new Dividend Aristocrat for 2021. We previously covered another 2021 addition to the Dividend Aristocrats list in our review of International Business Machines (IBM).

This article will discuss West Pharmaceutical’s business model, growth potential, competitive advantages, and whether we view the stock as a buy for 2021.

Business Overview

West Pharmaceutical Services is a healthcare company that engages in the manufacturing and sales of medical packaging and medical components and is a contract-manufacturer for other medtech companies. Among others, its offerings include automatic medication delivery systems and medicine injection solutions. West Pharmaceutical Services was founded in 1923 and is headquartered in Pennsylvania.

Source: West Pharmaceutical Services presentation

Sales are mostly generated in the US and the MENA region. This is not a big surprise, as healthcare expenditures on a per-capita basis are among the highest in the US and Europe. Components make up roughly half of the company’s sales, while delivery devices, so far, are responsible for only 5% of sales.

West Pharmaceutical Services benefits from long-term growth in the healthcare industry. As an aging population requires more and more medical care, this leads to higher drug sales, which, in turn, benefits West Pharmaceutical’s business, as this allows for higher sales. The company has thus managed to grow its organic sales, which backs out acquisitions, by ~5% a year in the past.

More recently, it has managed to grow its revenues by double-digits during the last couple of quarters. For example, in the 2020 third quarter West Pharmaceutical’s revenues rose by 20% year over year, to $550 million.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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