Many stocks performed well last year, but Medtronic (MDT 0.80%) wasn't one of them. The medical device giant failed to keep pace with broader equities, partly because it was still dealing with lingering pandemic-related issues, such as supply chain problems. However, Medtronic has a long and impressive track record of growing its revenue and earnings at a good clip and delivering solid returns to its shareholders.
While the past isn't a guarantee of anything, it's also important not to write off the company because of the headwinds it encountered in recent years. With that said, let's look deeper into Medtronic's business and decide whether it is worth buying its shares today.
Changes are afoot
Investors have been unsatisfied with Medtronic's revenue growth since before the pandemic.
MDT Revenue (Quarterly YoY Growth) data by YCharts. YoY = year over year.
Thankfully, the company is making moves to improve on that front. Medtronic is giving its business a makeover while investing in areas that could jump-start growth. Let's start by discussing the first of these items: Medtronic's business makeover. In late 2022, Medtronic announced it would separate its patient monitoring and respiratory intervention business.
The company aims to improve top-line growth as it focuses on more promising areas of its operations. Now, turning to Medtronic's investments in exciting areas, one example is the company focusing more on artificial intelligence (AI) to improve its products. For example, Medtronic improved the accuracy of its insertable cardiac monitor (ICM, designed to track patients' cardiac rhythms), the LINQ II, thanks to an AI algorithm.
The ICM returned fewer false alerts. Progress like this benefits everyone involved -- patients, physicians, and Medtronic itself -- since it increases people's confidence in its products. Another exciting growth area for Medtronic is robotic-assisted surgery (RAS). The healthcare giant developed an RAS device called the Hugo, which is currently used in some countries outside the U.S.
While not cleared in the U.S. yet, it is in testing and could eventually cross the regulatory barrier. RAS machines allow physicians to perform minimally invasive surgeries, that is, those involving no significant cutting of the skin. Surgeons use tiny instruments they can manipulate with uncanny precision. These procedures typically come with benefits such as less bleeding, less scarring, faster recovery times, and shorter hospital stays.
Yet, as Medtronic reported last year, less than 5% of procedures that could be performed robotically currently are. Intuitive Surgical leads this market by a mile, and Johnson & Johnson is looking to join the party. However, considering how severely underpenetrated the field is, Medtronic should be able to carve out a niche for itself. The company has other key growth areas, such as diabetes care. Expect Medtronic to report more robust revenue growth within a few years.
NYSE: MDT
Key Data Points
An excellent dividend stock
Medtronic is known for being a great dividend stock, and with good reason. The company is inching closer to Dividend King status; it is currently on its 46th consecutive year of dividend increases. The healthcare leader has hiked its payouts by a compound annual growth rate of 16% since 1978 -- that's incredible. Medtronic's payout ratio is almost 89%, which is a little high. However, the company should be able to maintain its dividend streak regardless. It also offers a yield of 3.21%, which is more than twice the S&P 500's average of 1.47%.
What's your investing style?
Medtronic will appeal to some investors, while others will ignore the stock. Those looking for incredible growth at all costs won't be opting for Medtronic. Even if the company's plan to jump-start top-line growth comes to fruition -- which I believe it will -- there are much better stocks for that kind of investor.
However, for those looking for a steady, reliable, blue-chip dividend stock that can keep raising its payouts for a while and is unlikely to become irrelevant anytime soon, Medtronic is a great stock to buy and hold.
