Medtronic Dividend Stock Analysis
Health care and health insurance costs keep increasing. I only know two ways to fight those rising costs.
- Lead a safe & healthy life style
- Invest in the health care sector
Let’s focus on the second option. While we take a look at a health care sector stock. So please join me for a dividend deep dive of Medtronic. Most noteworthy, let’s analyze the Medtronic dividend to see if it’s healthy.
COMPANY BACKGROUND
Medtronic is a global healthcare solutions company. They are committed to improving people’s lives. And do this through medical technologies, services and solutions.
As a result, they produce and sell products in these areas:
- Cardiac and vascular
- Minimally invasive therapies
- Restorative theapies
- Diabetes services and solutions
MEDTRONIC DIVIDEND YIELD
Medtronic pays an annual forward dividend of $2.00 per share. This is a 2.1% Medtronic dividend yield at the recent price of $96 per share.
COMPOUND ANNUAL DIVIDEND GROWTH RATE
| 1 Year | 3 Years | 5 Years | 7 Years |
| 8.4% | 14.8% | 12.1% | 11.2% |
Medtronic recently increased their dividend another 8.7% And Medtronic has increased their dividend 40 consecutive years. This is some big time dividend growth. And a nice long history of it.
REVENUE
Medtronic has strong revenue growth. Furthermore, growth comes from new products and acquisitions of other businesses. Most noteworthy, revenue jumped in 2016 due to the acquisition of Covidien.
Revenues are balanced across the operating groups as follows:
- Cardiac and vascular – 35% of revenues
- Minimally invasive therapies (formerly Covidien) – 33% of revenues
- Restorative theapies – 25% of revenuss
- Diabetes services and solutions – 6% of revenues.
MEDTRONIC DIVIDEND, EARNINGS AND PAYOUT RATIO
First of all, note that 2018 earnings have been adjusted for charges related to the 2017 tax cut and jobs act.
Based on both earnings and free cash flow, the dividend payout ratio runs near 50%. A lower payout ratio is a positive indicator. It shows the company has room to raise the dividend in coming years. Or, withstand an earnings drop with out having to reduce it. 50% or less is a safe level for most companies.
In future years, I expect the dividend to grow at the same rate as earnings. I estimate about 8% per year.
VALUATION & CONCLUSION
Metronic’s stock trades near its 52 week high. However, earnings growth has brought the price to earnings ratio down to the mid 20’s. That is still pretty high. A lower price to earnings ratio typically represents a better value for the investor.
SUMMARY & WRAP UP
I have a love-hate relationship with Medtronic.
Why do I love it? I have been an owner since 2010. And have enjoyed a nice return on investment. Medtronic has what I love about dividend growth investing:
- Current income
- Income growth from dividend increases
- Solid share price appreciation
Why do I hate it? Medtronic usually has a high price to earnings ratio. And a low dividend yield. Because of the low dividend yield, it is not a typical favorite of the dividend blogging community.
I plan to hold my current position for the long term. While looking to add on any significant price weakness from current levels.
OTHER RELATED ARTICLES
I hope you enjoyed this article. If so, here are others that you may find interesting:
- Another dividend stock analysis in the health care sector: Abbvie
- The model portfolio where Medtronic resides: The Dividend Deluxe
- The process I use for dividend stock analysis: Dividend Deep Dive
WHAT ARE YOUR COMMENTS?
Do you own or intend to purchase shares of Medtronic? What do you think of the company’s prospects? Leave a comment and let us all know!
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Disclosure & Disclaimer
As of this writing, I am long MDT. First of all, the information on this site is for educational and entertainment purposes only. In addition, the information is not to be used as investment advice specific to your circumstances. Furthermore, consult your personal investment and/or tax advisers prior to investing money. Finally, please realize you are solely responsible for any investment gains or losses as a result of the investments you enter into. You can find additional information under this site’s disclaimer tab: Disclaimer & Privacy Policy.
Hi Tom,
I like healthcare stocks in general, since the demographic trends seem to favor them (population growth, plus an aging of that population). I agree with your assessment of the pros and cons, and the conclusion of holding if already invested, and adding if the price decreases.
Cheers,
Miguel
Thanks Miguel. Yes. Seems like a sensible approach to me. Tom
Hi Tom –
Nice overview as usual. I’m familiar with Medtronic, but I don’t intend to acquire any position in the near future. Similar to Miguel’s comment above, it makes sense to buy on the dips if you’re under-allocated. – Mike
Hey Mike. Makes sense. I’m going to sit on my position and look for opportunities to add. If Medtronic corrects, probably means the whole market is going down creating many buying opportunities. Tom
Great review Tom!
I don’t have Medtronic but I know someone who works for them. She likes working for the company. With more and more people having cardiac issues and living longer lives, I’m sure people will be ever more reliant on technologies that Medtronic provides.
PS Awesome Pin! I will pin it! The arrows are on point (like the pun and the millennial lingo?)
Thanks for the kind words on the pin. I am trying to improve my Pinterest reach little by little. Tom
Really enjoy your deep dives Tom. I’ve looked at Medtronic a few times but healthcare is one of my larger sectors based on portfolio weighting due to a few long-term holdings. I don’t think it is a buy at these levels but it has performed well over the years and has had some really solid dividend growth.
Thanks DD. Agree with your assessment. There are better values and yields in health care than Medtronic. I’m pretty heavily weight in health care too, but I like where Medtronic is positioned as compared to big pharma companies and the more diverse health care plays like J&J. Tom
Interestingly I read a piece on SeekingAlpha today that talked about Medtronic being undervalued today based on their current yield in relation to their historical and 5-year average yield.
Hey DD. Good point. I know there are a number of DGI’s that look at stocks that way. It has always seemed like a reasonable approach to me, but I have never consistently incorporated it into my thought process. Tom
Thanks for the write-up on Medtronic, Tom! I’ve never really analyzed this stock and my portfolio is lacking in this sector. The payout ratio and dividend growth looks nice. But like you said, the p/e is high and the dividend yield is not that high. It’s definitely worth keeping an eye on. Thanks!
You are welcome RTC. Thanks for the kind words and I’m glad you enjoyed the post. Tom
Wow , I must have been out for quite a while! Look at that Pin! Getting fancy , are we?:)
I don’t own Medtronics and, while you presented a great analysis, I still don’t plan to buy any. Cheers.
Glad you like the pin Caroline. Trying to up my game going into year 2! Tom
I too concur with your analysis. My guess as to why there is not a huge following in the DGI community is that being an Irish company requires a little work to avoid the 20% DWT. Most – but not all – brokers try to make this a seamless process for their clients, If in doubt it may be best to avoid.
Interesting point. I have owned since before they moved their headquarters to Ireland for tax purposes. My broker has never withheld the 20%. Tom
great deep dive. I”ll put this one on my general watchlist 🙂 Would love to add for some diversification.
Sounds like a good plan Mr. R! Tom
Wife retired from Medtronic almost 2 years ago with stock options. Great company to work for. Innovative and smart company. Just bought more on the recent dip and will continue I’d other opportunities arise…
Thanks for your thoughts. Always good to get an inside view. I’ve been happy with the holding as well. Tom