It's not easy buying when everyone else is selling, but Wall Street wisdom suggests that's exactly what long-term investors should be doing. My take on that is to focus on long-term dividend payers with historically high yields in the hope that this combination will lead me to cheap but reliable dividend stocks.
So I recently added money to Hormel and Medtronic (MDT 1.48%), which both fit my investing mold. But Medtronic is probably the better-positioned company right now. Here's why I like it.
1. A great record
I'm a dyed-in-the-wool dividend investor, so we have to start with the dividend -- not the yield, the dividend streak. Medtronic has increased its dividend annually for 45 consecutive years. To be fair, it operates in the healthcare industry, making and selling medical devices, so it has a very reliable underpinning that doesn't tend to experience large cyclical swings. But that doesn't change the fact that the dividend record is pretty impressive and hints at a company that truly places a high value on rewarding investors well for sticking around.
Image source: Getty Images.
2. Now the yield
Right now, Medtronic's dividend yield is around 3.3%. That's not only much higher than what you'd get from an S&P 500 Index ETF (around 1.55%), but it also happens to be near the company's own historic highs. In other words, it looks like Medtronic has been put in Wall Street's discount bin.
MDT Dividend Yield data by YCharts
3. Real problems
That said, Medtronic is facing headwinds today. For example, it has been having trouble getting a diabetes product approved in the U.S. market. The same is true of the company's robotic surgery system. And there have been negative results with regard to a new product in the blood pressure space. Meanwhile, growth across the company has slowed down because of legacy businesses that are profitable, but not exactly exciting. From a big-picture perspective, there are very real reasons why investors are downbeat on the stock today.
4. Real solutions
The thing is, Medtronic isn't sitting still. For example, it plans to spin off some slower-growing businesses. The two divisions, patient monitoring and respiratory interventions, make up around 7% of revenue. And, particularly important to me, the plan is to maintain the dividend even after the transaction is complete. Exiting these businesses should also lead to faster growth and higher margins.
The diabetes business, meanwhile, has seen a new monitoring product accepted by more than 90 other countries around the world even as it deals with regulatory pushback in the United States. Patient demand and satisfaction have both been solid in the markets where it has been launched, so it seems like only a matter of time before the company gets U.S. approvals.
The same story plays out with Medtronic's new robotic surgery product. Called Hugo, the system is already being used in Europe and Asia, with management reporting during Medtronic's fiscal third quarter 2023 earnings conference call that it is receiving positive feedback from doctors. Notably, only about 5% or so of surgeries are done with robotic systems today, so there's a potentially large business opportunity here. And as the product gets accepted around the world, the likelihood of U.S. approval increases.
Lastly, the company's blood pressure procedure, renal denervation, produced what appeared to be less than inspiring trial results. This procedure, which helps to reduce blood pressure, was shown to be safe and reliable. The key is that it can help reduce the need for ongoing medication use, a care program that many patients aren't good at maintaining. However, the testing results were complicated by the coronavirus pandemic. Medtronic is pushing forward with more tests and expects the procedure's benefits to lead to eventual approval and substantive patient uptake.
More good news than bad
When you weigh the positives against the negatives here, it seems like there's a lot to like. Yes, many of the positives are just green shoots today, as the good news is only starting to build up. But that's exactly why I think now is a solid point at which to buy the stock -- before there's so much good news that everyone jumps on the bandwagon. If you can handle a little uncertainty, you can still collect a historically high yield while Medtronic starts to get its troubles under control.
