Not all dividend stocks are created equal. Some haven't slashed their payouts in years and probably won't anytime soon, while others aren't so lucky. One dividend-paying company recently decided to reduce its payouts: Medical Properties Trust (MPW +1.30%). The healthcare-focused REIT just announced it was reducing its dividend by about 50%. The move wasn't surprising.
Medical Properties Trust's abnormally high dividend yield (it was in the low to mid teens) and financial problems -- caused by the challenging economic conditions and some of its tenants facing issues -- made this development predictable. Many dividend investors ran for the hills after Medical Properties Trust announced it was cutting its dividend. However, here's one stock they can invest in safely without being worried the same thing will happen again: Medtronic (MDT +0.13%). Let's find out why.
NYSE: MDT
Key Data Points
Medtronic's business is rock solid
Every business runs into trouble. Medtronic is no different. Over the past three years, the company's operations ran into multiple hurdles. First, during the COVID-19 pandemic, elective surgeries -- a key business for Medtronic to generate sales -- saw decreased volumes. Second, economic issues such as inflation, supply chain problems, labor shortages, and currency exchange dynamics took a bite out of top-line growth. Still, how has Medtronic performed throughout this ordeal?
Not great, but again, not really surprising. Revenue growth has been sluggish (although this issue predates the pandemic). Profitability hasn't been better either. While revenue and net profit increased in 2021, that was only due to the corresponding pandemic-related drop in the prior year.
MDT Revenue (Quarterly YOY Growth) data by YCharts.
Yet, Medtronic is different from other companies because its underlying business is solid enough to handle economic downturns. Here's what makes Medtronic's business so strong: a vast and diversified portfolio of medical devices across several areas. The company has the ability to innovate -- it routinely develops newer gadgets, thereby expanding its existing portfolio. Also, the company is deeply entrenched in the healthcare sector, a difficult one to navigate due to a barrage of legal and regulatory barriers.
And Medtronic has been doing it successfully for a while. Although the pandemic hurt its business, the company is recovering gradually, as evidenced by its latest quarterly update, which impressed the market. For the first quarter of its fiscal year 2024, which ended on July 28, Medtronic's revenue increased by 4.5% year over year to $7.7 billion. The company's adjusted net earnings per share of $1.20 climbed 6% compared to the year-ago period. Medtronic also boasts exciting long-term growth opportunities.
We can point to the company's use of artificial intelligence to enhance its business and its development of a robotic-assisted surgery (RAS) system called Hugo to profit from the under-penetrated, exciting, and fast-growing RAS market. Medtronic is also separating its patient monitoring and respiratory intervention business, a move that should lead to stronger revenue growth and a greater focus on high-growth areas of its business.
There will always be a need for the kinds of services Medtronic offers. The demand will increase as the world's population ages. Medtronic is well positioned to continue thriving in the healthcare industry over the long run.
A soon-to-be Dividend King
Medtronic has an impressive dividend history. The company is on its 45th consecutive year of payout increases. This is yet another piece of evidence in favor of Medtronic's robust business -- only companies with solid operations can raise their dividends every single year for this long. Over the past five years alone, Medtronic has hiked its payouts by 38%. This period includes all the issues and troubles it encountered due to the pandemic and economic issues.
MDT Dividend data by YCharts.
Management has faith in the company's ability to sustain regular dividend increases. Medtronic is inching closer to becoming a Dividend King, a group of companies that have raised their payouts for at least 50 consecutive years. It offers a yield of 3.36%, which is very good, along with a cash payout ratio of about 81%, which seems high. Still, given the company's track record and excellent prospects, I won't be too worried about this stock.
It is unlikely to pull the same move as Medical Properties Trust and slash its payouts under investors' noses.
