The stock market has the potential to make just about anybody with enough patience and discipline a millionaire. This is because it has historically delivered 10% annual total returns over the long run, which is enough to double the wealth of an investor every seven years.
The medical devices maker Medtronic (MDT 0.62%) has been a tremendous wealth-building stock for decades: A $33,000 investment made 30 years ago in the company would now be worth more than $1 million with dividends reinvested. For context, that same investment in the S&P 500 index would have grown to $562,000. This raises the following question: Does Medtronic still have the potential to help mint millionaires moving forward? Let's look at the company's fundamentals and valuation to address this question.
Innovation could reignite growth
With just shy of 50,000 patents in its product portfolio, Medtronic is among the most inventive businesses in the world. This explains how the company's devices treat tens of millions of patients each year with dozens of medical conditions across numerous therapy areas, including cardiovascular, neuroscience, and diabetes, as well as respiratory, gastrointestinal, and renal.
Medtronic's total revenue in its fiscal year 2023 (ended April 28) decreased 1.4% year over year to $31.2 billion. But adjusting for the $1.4 billion headwind of unfavorable foreign currency translation, the company's total revenue would have grown at a respectable 2.1% organic clip for the fiscal year. Top-line growth in Medtronic's cardiovascular, neuroscience, and diabetes businesses offset a single-digit decline in its medical surgical business revenue during the fiscal year.
Looking toward the immediate future, the company has a product launch that could soon prove to be a major growth catalyst. Medtronic's MiniMed 780G advanced insulin pump system recently received approval from the U.S. Food and Drug Administration in late April. Using cutting-edge technology, the device automatically adjusts insulin every five minutes to help type 1 diabetes patients consistently stay within a healthy blood sugar range. Considering the efficacy of the system and that 1.5 million Americans live with type 1 diabetes, this product could ultimately become a blockbuster for Medtronic.
The company also has countless products currently being tested in over 200 clinical trials. This is why I believe it's safe to conclude that for fiscal year 2024, Medtronic could be right around the 125 product approvals that it obtained in fiscal 2023. This should help the company return to mid- to upper-single-digit annual non-GAAP (adjusted) diluted earnings per share (EPS) growth over the medium term.
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A generous and sustainable dividend
Compared to the S&P 500 index's 1.6% dividend yield, yield-oriented investors will find Medtronic's 3.3% dividend yield to be quite attractive. And given that the present quarterly dividend per share of $0.69 has soared more than 146% in the last decade, the company offers growth to go along with high starting income.
The good news for dividend growth investors is that Medtronic's 46 consecutive years of dividend growth could be just the beginning. This is because the dividend payout ratio is poised to clock in below 55% for fiscal year 2024. That leaves the company with plenty of capital for acquisitions to further strengthen its business and repay debt.
The stock looks like a bargain
Even after having gained 6% so far in 2023, shares of Medtronic appear to be deeply undervalued. The stock's forward price-to-earnings (P/E) ratio of 15.2 is far less than the medical devices industry average forward P/E ratio of 25.8. Considering that Medtronic still seems to have some level of millionaire-maker potential for patient investors, I think this valuation makes it a clear buy for dividend growth investors.
