Here is one thing that separates the best dividend stocks from the rest. Even when economic or market troubles hit, solid dividend-paying companies do not decrease or suspend their payouts. That's because they generally have stable businesses that can survive in any environment.
With the downturn that equity markets experienced last year, investors can now find such corporations in the discount bin. Two excellent examples are Abbott Laboratories (ABT -0.79%) and Medtronic (MDT -1.14%). Both are solid dividend stocks with strong, long-term outlooks.
1. Abbott Laboratories
Abbott Labs encountered several problems last year that contributed to its poor performance. First, manufacturing of some of its infant formula products was disrupted due to safety-related issues at some of its facilities. Second, unfavorable currency exchange dynamics affected revenue growth like at many other corporations.
For the full fiscal 2022, Abbott Laboratories reported sales of $43.7 billion, up 1.3% year over year, or 6.4% in constant currency. The company's adjusted net income for the year came in at $9.5 billion, 1.1% higher than the previous fiscal year. Abbott won't deal with all the issues it encountered last year forever. The company restarted manufacturing at the infant formula facilities that halted production last year. Currency exchange rates should also stabilize eventually.
That's why investors should focus on the parts of Abbott's business that are performing well. For instance, the healthcare giant is an established innovator and continues developing new products. Just in January, the company received key approvals from the U.S. Food and Drug Administration, including that of the next-gen version of its device to treat severe aortic stenosis, the Navitor. Aortic stenosis is a potentially life-threatening condition that leads to reduced blood flow from the heart.
Also in January, Abbott's Proclaim XR SCS system earned a label expansion in treating diabetic peripheral neuropathy, a complication of diabetes. Abbott's diabetes care business is doing particularly well. It reported sales of $4.8 billion last year, an increase of 9.9% year over year, or 17.4% in constant currency.
Abbott's continuous glucose monitoring system, the FreeStyle Libre, continues to be the star of the show, racking up sales of $4.3 billion in 2022, 16% higher than the previous fiscal year. These businesses should see support from long-term trends, such as an aging population that is unfortunately more prone to heart-related problems such as aortic stenosis and an increase in diabetes.
The company is well-positioned to continue developing new products and delivering decent financial results. Abbott Laboratories has raised its dividends for 51 consecutive years (a period that includes several recessions), making it a member of the exclusive club of Dividend Kings. Given Abbott's track record and solid operations, there are likely many more years of dividend growth in the company's future.
2. Medtronic
Medtronic is also a longtime leader in the medical device field, with a vast array of products and a knack for innovation. But last year, it fell prey to economic problems such as inflation and supply chain disruptions that increased costs and materially affected its top and bottom lines. During its latest quarter -- the second quarter of its fiscal year 2023, ended on Oct. 28 -- the company's revenue decreased by 3% year over year to $7.6 billion.
On an organic basis, Medtronic's revenue increased by 2% compared to the year-ago period. On the bottom line, Medtronic's adjusted net income dropped by 4% year over year to $1.7 billion.
Despite its recent troubles, there are still good reasons to invest in Medtronic. First, once again, the economy will recover, and those problems that have affected the company will recede. Once inflation cools down (which has already started to happen), and supply chain issues wane, expect better results from Medtronic. The company also announced the spin-off of its patient monitoring and respiratory interventions businesses last year, which should lead to stronger revenue growth.
Furthermore, Medtronic still has plenty of opportunities ahead. Consider the robotic-assisted surgery (RAS) field, where the company is looking to carve out a niche. In December, it enrolled the first U.S. patient in a clinical trial for its Hugo RAS device; the company is working toward earning clearance in the country.
The Hugo, which is already approved in Europe, offers physicians the ability to perform minimally invasive surgeries, which come with several advantages compared to open surgeries. These benefits include less scarring, less bleeding, faster recovery times, and shorter hospital stays. This and other opportunities can allow Medtronic to rebound from a down year while still offering regular dividend hikes.
The company has raised its payouts for 45 consecutive years, so it's inching closer to Dividend King status and will likely join this club in a few years.
