Medical device company Medtronic (MDT 4.05%) recently received some good news regarding its diabetes business. The market responded positively, boosting the stock price by 14% over the past month, but it remains more than 30% down from its highs in 2021.

These actions might have created an opportunity to take a fresh look at the bigger picture for this stock. The soon-to-be Dividend King is a stalwart in the global healthcare landscape with a healthy outlook that can benefit investors.

Here is why Medtronic could make sense in a long-term investor's diversified portfolio.

Diabetes headwinds have cleared

Medtronic had some dark clouds hanging over its head. The Food and Drug Administration (FDA) issued a warning letter in late 2021 for a potential problem with the retainer rings for its MiniMed 600 series insulin pumps. The retainer rings could cause the pumps to administer incorrect insulin doses to patients.

Technically, Medtronic's diabetes business is its smallest unit, generating $570 million of its overall $7.7 billion in revenue in Q3 of its fiscal 2023 (ended Jan. 27). Medtronic dabbles in various end markets, selling devices for cardiovascular, neuroscience, and surgery robotics applications. Still, bad press is bad press, and healthcare companies can get a black eye when their products impact patients.

The warning letter was recently lifted after Medtronic took the proper steps to fix the problem. It reinforced that with some additional good news with FDA approval for its MiniMed 780G insulin pump system. This product has technology that can detect food intake and automatically adjust insulin levels as needed. Diabetes is a big market, estimated to grow to more than $300 billion worldwide by 2030. An estimated 1-in-10 Americans have the condition.

Medtronic has a solid growth outlook and reliable dividend

Investors can clue in on a company with a long dividend track record because it implies that a business is continually growing profits. Otherwise, it probably couldn't afford to keep raising it. Medtronic will soon be a Dividend King; the company has paid and raised its dividend for 46 consecutive years. The stock's depressed share price offers investors a dividend yield of nearly 3% today.

MDT Dividend Chart

MDT Dividend data by YCharts

Looking at the dividend payout ratio, investors might see trouble -- 85% is higher than you'd probably like to see. However, inflation and unfavorable currency exchange rates impacted Medtronic's cash flow this year. Management noted on its most recent earnings call that it's cutting costs and that inflation is moderating. Investors should keep an eye on Medtronic's cash-flow numbers over the coming quarters but can expect management to work on driving that payout ratio back down. It seems way too soon to worry about a dividend cut.

Naturally, growth will also help reign in the payout ratio. Analysts believe Medtronic will grow earnings per share (EPS) by an average of 8% annually over the next three to five years. A combination of share repurchases with modest yearly organic revenue growth could get Medtronic there, especially if inflation continues easing.

An attractive long-term buy today

Medtronic remains a pillar in the healthcare industry, backed by decades of earnings growth, so don't overthink the stock's short-term movements. However, you can take advantage of the occasional stumbles that every company encounters, and that's what you have in Medtronic today.

The stock has averaged a price-to-earnings (P/E) ratio of more than 30 over the past 10 years but it trades at a P/E of just 17 today. Is Medtronic a failing business that no longer justifies the valuation it once commanded or a healthy company that's hit some short-term bumps? That's a decision you must make, but it's hard to deny the stock's value if you believe Medtronic will still be around years from now.

MDT PE Ratio (Forward) Chart

MDT PE Ratio (Forward) data by YCharts

Put another way, investors are looking at roughly 11% annual returns as long as the company does what analysts expect moving forward (meet earnings estimates). If Wall Street eventually decides it was too harsh on Medtronic and rerates the stock higher again? Well, then, investors will be in for a really good time.