For income-seeking investors, the only thing better than a solid dividend stock is a beaten-down one whose shares can be bought on the dip. And while the market has largely recovered this year, some dividend-paying corporations missed the memo and have substantially lagged broader equities, which makes them ideal targets for dividend investors.
Let's look at two examples: Medtronic (MDT 0.62%) and Viatris (VTRS 0.87%).
1. Medtronic
Medtronic is one of the largest healthcare companies in the world and focuses on medical devices. It boasts a vast portfolio of products across four main therapeutic areas and dozens of countries. However, Medtronic has had trouble growing its revenue lately. The company has also encountered severe problems due to the pandemic as the volume of elective procedures slowed -- and the economic issues that followed, such as inflation and supply chain problems.
Medtronic is performing relatively well, all things considered. In the first quarter of its fiscal 2024, which ended July 28, the company's revenue increased by a decent 4.5% year over year to $7.7 billion; its adjusted earnings per share (EPS) of $1.20 jumped by a solid 6% compared to the year-ago period. Despite the headwinds it's encountered in recent years, Medtronic should be just fine in the long run for at least two reasons.
First, the company is a proven innovator in the healthcare industry. Medtronic will continue to find ways to improve its products and develop new ones. The company is dabbling in artificial intelligence (AI). It's also looking to profit from fast-growing markets, such as the diabetes space with its MiniMed insulin pump and the robotic-assisted surgery market with its Hugo system.
Second, Medtronic has deep footprints across the healthcare sector, where patients' lives sometimes depend on the quality of the products it offers. Given its track record, medical professionals know they can trust the company's devices, and that's a significant advantage.
It's also worth noting that Medtronic is in the process of divesting parts of its business that are deadweights on its top-line growth, so the company should improve on that front.
What about the dividend? Medtronic has raised its payouts for the past 46 years straight -- a highly impressive feat. The company should soon join the ranks of Dividend Kings. It currently offers a high yield of 3.6% and a cash payout ratio of 82%. That seems a bit high, but considering the company's history and the strength of its business, investors shouldn't fear that Medtronic will cut its dividend.
2. Viatris
Viatris is one of the largest manufacturers of generic drugs in the world. The company's portfolio also features many well-known branded drugs such as Viagra and Xanax. In fact, it generates most of its sales -- generally about two-thirds -- from its branded products.
Revenue growth hasn't been stellar. However, Viatris has been giving its business a makeover by selling off some of its business segments. It just announced it could soon be divesting its over-the-counter and women's health businesses.
The company's goal is to reduce its level of debt while thinning its overall business and focusing more closely on areas with high growth potential. One of its most promising therapeutic fields is ophthalmology. Viatris now estimates its eye care division will add more than $1 billion in annual sales by 2028.
In the second quarter, Viatris reported total net sales of $3.9 billion, a decrease of 5% year over year. Even adjusting for divestitures it conducted since last year's second quarter, the company's top line increased by an unimpressive 1% year over year. Meanwhile, Viatris' adjusted EPS of $0.22 decreased by about 15% compared to the year-ago period.
Viatris' financial results won't significantly improve overnight, but its strategy should pay off down the line. In the meantime, the healthcare specialist should continue returning capital to shareholders, which management says is a priority. Viatris currently offers a dividend yield of 5% and a cash payout ratio of 28%, giving it plenty of room for dividend growth.
