Medtronic (MDT 0.62%) is a top medical device maker that pays a high dividend. With operations in 150 countries with products helping people with more than 70 different health conditions, it has a broad reach. Year to date, it has been a good buy, generating returns of 14%. But can this investment potentially make you a millionaire?
Medtronic's growth has been good but not great
In the past 10 years, Medtronic's business has grown, but the results may not have been as strong as growth investors may have liked.
MDT Revenue (Annual) data by YCharts.
At a roughly 23% increase in net income, that averages out to a compounded annual growth rate (CAGR) of just over 2% per year. That rate of increase is a bit underwhelming, and without a significant improvement in that, it would be unlikely for this to be a millionaire-making investment over the long haul.
Revenue during the past decade has averaged a CAGR of 6.3%. But for fiscal 2024, which ends in April, the company is forecasting revenue growth between only 4% and 4.5%. Despite more product approvals and continued expansion, there don't appear to be enough growth catalysts in the business for Medtronic's growth rate to improve significantly, at least in the near term.
Medtronic's dividend is high but could hinder growth
One thing investors may like about Medtronic is that it pays a dividend that yields 3.1% -- that's double the S&P 500 index average of around 1.5%.
The dividend can help with investors' overall returns, and over the past 10 years, when including the dividend, Medtronic's total returns are just over 100%. That is, however, still unimpressive given that the S&P 500 has generated total returns of over 225% over the same time frame.
Another concern for investors is that the company's payout ratio is close to 100%, and Medtronic doesn't bring in significant cash flow to leave much room for it to pay the dividend and be able to invest heavily in its long-term growth:
Fundamental Chart data by YCharts.
For fiscal 2023, the company generated free cash flow of just under $4.6 billion versus $3.6 billion it paid out in dividends. That leaves Medtronic with about $1 billion to potentially pursue growth, and that may not be enough to improve upon its lackluster growth rate. And from the chart above, you can see that there are times where free cash flow has been less than what it has paid in dividends -- a concerning trend investors will want to keep an eye on.
Medtronic isn't likely to make you a millionaire
If you're looking for a high-yielding dividend stock, Medtronic could be a good buy as the dividend still looks safe based on free cash flow. But if you're expecting this to be a stock that helps you become a millionaire, you might be sorely disappointed. It has been an underwhelming buy versus the S&P 500, and without significant resources (i.e., cash) to turn that around, I wouldn't expect a much better performance over the next 10-plus years.
For growth-oriented investors, there are many other healthcare stocks that could be better options to consider. Medtronic can offer some good diversification and a high dividend, but beyond that, this doesn't look like a stock that would be suitable for any other long-term investment goals.
