Dividend growth stocks that are struggling can be ideal buys for income investors right now. As long as their payouts remain safe, there's plenty of incentive to consider them. Not only are their yields higher than normal due to the current bear market and lower prices, but their payouts could also continue to increase in the years ahead.
One beaten-down dividend stock that investors should consider buying today is Medtronic (MDT 0.89%). It hasn't gotten much love over the past year, falling 28% and nearing its 52-week low. However, the future remains bright for the business, and here's why you may want to load up on the medical device company.
A diverse business gives it many avenues to grow
Diversification can be both a blessing and a curse for a company, and Medtronic is a good example. The business reported its third-quarter earnings last month and the results appeared underwhelming, with revenue of $7.7 billion for the period ended Jan. 27 coming in flat from the prior-year quarter. But that was due to one of its segments -- medical surgical -- weighing on the top line. Hospital procedures are still recovering and getting back to normal after disruptions due to the pandemic, and so that's been an area that hasn't been doing too well lately.
Image source: Medtronic's Q3 earnings presentation.
However, investors will note that organic sales increased 4.1%, and so the business was technically still growing. Organic revenue excludes the impact of foreign exchange. Here again, Medtronic's diversification has hurt its quarterly results because the company generates a significant chunk of its revenue from outside U.S. markets:
Image source: Medtronic's Q3 earnings presentation.
In the long run, it's easy to see from both the different types of products Medtronic makes and its vast geographical reach why the business has some strong growth opportunities ahead. In the past 12 months, the company has obtained approximately 150 approvals for products in key markets (this includes the U.S., European Union, Japan, and China).
The dividend sweetens the deal
If you were to quickly scan for dividend stocks you might overlook Medtronic because of its high payout ratio, which is at 88%. But profitability should improve as the company is growing and also getting leaner. Medtronic is spinning off two segments: patient monitoring and respiratory interventions. The decision was announced in October, and the company expects that it will take up to a year and a half to complete. By becoming leaner, that can help save money and improve its growth rate as the company narrows its focus.
Improving its financials could lead to some generous rate increases in the future. Medtronic has been raising its dividend consistently for 45 straight years, and it would take something massive for the company to suddenly end that streak. After all, it'll only take five more annual increases for the stock to join the ranks of the prestigious Dividend Kings. Its 3.5% yield is already double the S&P 500's average of 1.7%, and so there's plenty of incentive for dividend investors to load up on Medtronic's stock.
Is Medtronic a buy?
Whether you're a growth investor or a dividend investor, Medtronic looks to be an appealing stock to buy right now. I would be surprised if the company stopped raising its payouts. And with some encouraging growth opportunities ahead, its financials should also improve.
At 14 times its future earnings (based on analyst expectations), it's also a relatively cheap stock to own; the average healthcare stock trades at a forward earnings multiple of almost 17. Near its 52-week low, Medtronic's stock could be a steal of deal right now.
