Smith & Nephew Is A Premium Brand That Should Deliver Something Special

Summary

Smith & Nephew is 165 years old, highly adaptable, and will likely outlive us all. And our grandchildren.

SNN has paid dividends on its ordinary shares every year since 1937.

If value investing founder Benjamin Graham were alive today, I’m confident he would agree that SNN is a dividend SWAN.

This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Learn More »

SunnySideUp/iStock via Getty Images This article was co-produced with Dividend Sensei.

Warren Buffett has famously said, “Your premium brand had better be delivering something special, or it’s not going to get the business.” That’s what Smith & Nephew ( SNN ) makes me think of – in a positive way.

I’m sure many of you have never heard of this company before. Honestly, I never did either before Dividend Sensei brought it up to me.

Yet this is hardly a new kid on the block. Smith & Nephew has been around a long, long time.

As financial analysts, Dividend Sensei and I spend countless hours researching stocks. And we adhere to value investing founder Benjamin Graham’s school of value investing to reach our conclusions. He said, “ You will be wiser to form your own ideas of the value of your holdings based on full reports from the company about its operations and financial position.” I’m now long SNN, and it has officially been added to iREIT on Alpha’s Retirement Portfolio.

From everything we can see, it’s a great stock to add despite how dangerously red-hot the market has been – with 63 record highs and counting.

To recap that situation, almost every asset class is up this year. And popular meme stocks like Tesla ( TSLA ) are up another 73% after soaring 700% last year.

According to JPMorgan ( JPM ), the market is now 29% historically overvalued. As such, it’s offering zero inflation- and risk-adjusted returns for the next five years.

Yet Smith & Nephew still looks like a hyper-growth SWAN for readers to consider. Reason 1: Quality and Safety You Can Trust

Smith & Nephew designs, manufactures, and markets medical care products such as: Orthopedic devices (40% of revenue)

Sports medicine and ENT technologies (30%)

Wound-care solutions (27%)

And, as Morningstar writes, about half of its total revenue comes from the U.S., with “just over 30%… from other developed markets, and emerging markets” accounting for the rest.

With that explanation established, we’ll let Dividend Sensei roll out his trio of safety scores: Source: Dividend SenseiThat makes it the 197 th (out of 508) highest-quality member of Dividend Sensei’s Master List Company – the elite of the elite. That puts it in league with: Altria ( MO ) Cisco ( CSCO ) Eli Lilly ( LLY ) Headquartered in London, the company was founded in 1856 by Thomas James Smith in 1856. That makes it 165 years old. And frankly, it’s highly adaptable and will likely outlive us all. And our grandchildren too.Over that time, SNN has pivoted, adapted, and overcome numerous global economic crises, recessions, bear markets, and interest rates ranging from 0% to 16% in the U.K.! And it’s paid a dividend every year through much of that – since 1937.That’s thanks to its globally diversified and recession-resistant business model.Smith & Nephew is involved in a $36 billion global market that’s growing at about 3%-5% per year outside of the pandemic. And of that, it has a 15% overall global market share.That does, admittedly, make it smaller than some of its competitors like Johnson & Johnson ( JNJ ) and Medtronic ( MDT ). But it stays in the game nonetheless with breakthrough ways of approaching hip resurfacing implants and knee replacements.The company does recognize that its heavy reliance on large-joint replacement might be too much. But that’s why it purchased ArthroCare for its sports medicine angle in May 2014…Osiris Therapeutics in April 2019 for its regenerative angle…And Leaf Healthcare in April 2019 for its pressure sore-monitoring system.Below, you can see how hard – and smart – it works to produce innovation and gaining market share.(Source: Investor presentations)And its plan is to continue making smart tuck-in acquisitions while simultaneously winning market share organically.This strategy has worked for it so far, with market share growing from 8% to 10% in the last decade. And SNN is #2 in most of its markets and #4 in hip and knee implants. For all those reasons and a few more, S&P gives it a BBB+ rating and Moody’s a Baa2.Both come with […]

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