Dividend Aristocrats In Focus: Medtronic

Up to date on March twenty ninth, 2024 by Bob Ciura

Buyers on the lookout for high-quality dividend progress shares ought to focus, partly, on corporations that keep lengthy histories of dividend will increase.

Regular dividend raises from yr to yr, whatever the financial local weather, is an indication of an organization with sturdy aggressive benefits and long-term progress potential.

With that in thoughts, yearly, we overview every of the Dividend Aristocrats, a gaggle of 68 corporations within the S&P 500 Index, with 25+ consecutive years of dividend will increase.

You’ll be able to obtain your copy of the Dividend Aristocrats checklist, together with vital metrics like dividend yields and price-to-earnings ratios, by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend just isn’t affiliated with S&P World in any approach. S&P World owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet relies on Certain Dividend’s personal overview, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person traders higher perceive this ETF and the index upon which it’s based mostly. Not one of the info on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official info.

The following Dividend Aristocrat within the sequence is healthcare big Medtronic (MDT).

Medtronic has a formidable historical past of dividend progress. The corporate has elevated its dividend for 46 years in a row. With an roughly 3.2% yield, Medtronic just isn’t precisely a high-yield inventory.

Nonetheless, the inventory’s yield remains to be larger than the typical yield of the S&P 500.

And, Medtronic sometimes raises its dividend at a excessive fee every year, because of its robust earnings and management place inside the medical units {industry}.

These qualities make Medtronic a pretty dividend progress inventory for long-term traders.

Enterprise Overview

Medtronic was based in 1949 as a medical gear restore store by Earl Bakken and his brother-in-law, Palmer Hermundslie. Right now, Medtronic is likely one of the largest healthcare corporations on the planet.

Medtronic PLC is the biggest producer of biomedical units and implantable applied sciences on the planet. Medtronic presently has 4 working segments: Cardiovascular, Neuroscience, Medical Surgical, and Diabetes.

In mid-February, Medtronic reported (2/20/24) monetary outcomes for the third quarter of fiscal yr 2024.

Supply: Investor Presentation

Natural income grew 5% over the prior yr’s quarter because of broad-based progress in all of the 4 segments. Earnings-per-share remained flat at $1.30 as a consequence of an -8% forex headwind however exceeded the analysts’ consensus by $0.04.

Because of improved enterprise momentum, Medtronic raised its steering for fiscal 2024. It expects 4.75%-5.0% natural income progress (vs. 4.75% beforehand) and earnings-per-share of $5.19-$5.21.

Progress Prospects

Medtronic is investing in progress, each organically through R&D and thru acquisitions. The primary catalyst for Medtronic is the ageing inhabitants. There are ~70 million Child Boomers within the U.S., these aged 51-69 years. Hundreds of persons are coming into retirement each day. Mixed with longer life expectancy and rising healthcare spending, the working surroundings could be very enticing for Medtronic.

The corporate has had many regulatory product approvals prior to now yr. The brand new merchandise ought to drive progress, permitting the corporate to keep up and even achieve market share.

Supply: Investor Presentation

Medtronic additionally has a serious progress alternative in new geographic markets. Particularly, Medtronic has a presence in a number of rising markets, reminiscent of China, India, Africa, and extra. These international locations have massive populations and excessive financial progress charges.

Medtronic’s rising market income has constantly grown at a double-digit fee for a few years. Whereas the U.S. presently accounts for simply over half of Medtronic’s income, rising markets are rising quicker.

Medtronic is buying tuck-in acquisitions and has spent greater than $3.3 billion on 9 acquisitions since 2021. These corporations embody Acutus Medical, Medicrea, RIST, Avenu Medical, Companion Medical, Sonarmed, intersect ENT, AFFERA, and AI Biomed.

Total, we anticipate Medtronic to develop its earnings-per-share by 7.0% per yr on common till 2029.

Aggressive Benefits & Recession Efficiency

The principle aggressive benefit for Medtronic is its analysis and growth capabilities. The corporate spends closely on R&D every year, which offers it with product innovation. Medtronic’s R&D investments over the previous few years exceed $2 billion every year.

The results of all this spending is that the corporate has an enormous mental property portfolio with almost 86,000 awarded patents. This reality has allowed Medtronic to construct a powerful product pipeline throughout every of its enterprise segments.

As well as, Medtronic advantages tremendously from its world scale. The corporate operates in over 140 international locations world wide. It has the operational flexibility to generate industry-leading revenue margins, which helps gas its progress.

One other aggressive benefit for Medtronic is that it operates in a defensive {industry}. Customers usually can’t forego medical remedies, even when the financial system is in recession.

Medtronic’s earnings-per-share in the course of the Nice Recession are as follows:

2007 earnings-per-share of $2.61
2008 earnings-per-share of $2.92 (12% improve)
2009 earnings-per-share of $3.22 (10% improve)
2010 earnings-per-share of $3.37 (5% improve)

Medtronic had the uncommon achievement of earnings progress every year in the course of the recession. The corporate additionally confirmed exceptional energy in the course of the pandemic. This demonstrates its recession-resistant enterprise mannequin.

Medtronic ought to be capable to proceed rising its dividend every year in each financial recessions and expansions.

Valuation & Anticipated Returns

Based mostly on the current share value of ~$87 and anticipated earnings-per-share of $5.20 in fiscal 2024, Medtronic inventory trades for a price-to-earnings ratio of 16.7. The inventory’s present valuation is beneath that of the broader S&P 500 Index and modestly beneath its long-term common.

Within the final decade, shares of Medtronic have traded arms at a median price-to-earnings ratio of 17.0. We imagine that this can be a truthful valuation baseline.

In consequence, Medtronic shares seem like barely undervalued as we speak. If the inventory valuation expands to our truthful worth estimate by 2029, the corresponding a number of growth will enhance shareholder returns by roughly 0.4% per yr over this era.

We anticipate 7% annual earnings progress for Medtronic by 2029, and the inventory has a 3.2% dividend yield. There’s loads of room for continued dividend will increase every year.

With a dividend payout ratio of simply over 50%, and a optimistic earnings progress outlook, Medtronic ought to proceed its streak of annual dividend will increase.

Whole returns would encompass the next:

7.0% earnings progress fee
0.4% a number of growth
3.2% dividend yield

Medtronic is anticipated to return 10.6% yearly over the subsequent 5 years. That is a pretty potential fee of return, giving the inventory a purchase ranking.

Closing Ideas

Medtronic has nearly all the qualities dividend progress traders ought to search for. It possesses a extremely worthwhile enterprise, a management place in its core markets, and long-term progress potential. It additionally has a number of catalysts for future progress and the flexibility to continue to grow its dividend even throughout recessions.

Medtronic has elevated its dividend for greater than 4 a long time, which is extremely spectacular given the continued headwinds from a troublesome macroeconomic surroundings.

Medtronic inventory seems to offer a compelling funding alternative for long-term dividend progress traders.

Moreover, the next Certain Dividend databases comprise probably the most dependable dividend growers in our funding universe:

In the event you’re on the lookout for shares with distinctive dividend traits, think about the next Certain Dividend databases: