Medtronic (MDT -0.35%) isn't getting much love on Wall Street today. The stock has fallen around 33% since hitting a peak in mid-2021. That's a huge decline, but it may be overdone. Sure, there are problems for Medtronic to deal with, but it has an impressive business, a strong operating history, and a long track record of rewarding investors.
Here are three key things you need to know about Medtronic that may get you to buy the stock today.
1. Medtronic is two years away from an impressive title
Medtronic's stock decline isn't great for shareholders who bought in early 2021, but it could be an opportunity for new investors. That's particularly true if you love dividends. The stock's dividend yield is currently around 3.1%. That's historically high for the stock, well above the S&P 500 index's 1.2% yield, and greater than the 1.8% yield of the average healthcare stock.
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But the real dividend story here is that Medtronic has increased its dividend annually for 48 consecutive years. That's just two years shy of Dividend King status. This isn't the kind of record you build by accident -- it requires a strong business model that gets executed well in good times and bad. Right now happens to be a relatively bad time for Medtronic.
But history shows it is likely to muddle through while continuing to reward investors with reliable dividends. If you buy now, you'll also get a high yield.
2. Medtronic's problem isn't easy to fix, but it is fixable
Medtronic makes highly complex medical devices. That requires a huge amount of research and development. And then, after a new product has been developed, it requires navigating the complex regulatory approval process. This all takes time and, more often than not, the road to a successful product launch is on the bumpy side. Part of Medtronic's current problem is that it hasn't been able to introduce new products as quickly as investors wanted.
That's just how things go in the medical field. But it doesn't mean that Medtronic isn't working on new products. In fact, it is starting to see important progress on this front. But it will still take some time before its surgical robots and other new products gain material traction. The key thing is that Medtronic is aware of the fact that its growth has stalled out and it is working on the innovation that will help get growth back on track.
If you think in decades and not days, you should feel comfortable that Medtronic is inching toward a brighter future.
3. Medtronic is revamping its lineup
In addition to the innovation that Medtronic is working on, it has also been focused on the profitability aspect of its business. Simply put, it has been getting out of less profitable businesses with the goal of improving the profitability of the rest of the company. For a large company like Medtronic, that's really just normal business maintenance.
What's notable here, however, is that Medtronic isn't leaving any stone unturned in this effort. For example, it plans to spin off its diabetes business next year. The move is expected to be accretive from day one, which shows the benefit of removing lower margin businesses from the mix. That also frees up capital that could be used to invest in R&D or to buy smaller healthcare businesses with interesting technologies.
Medtronic is a good opportunity for long-term dividend investors
It is highly unlikely that Medtronic's business or stock turns on a dime. In fact, the diabetes spinoff could act as a headwind until it is completed in 2026. But if you are a dividend investor, the historically high yield that Medtronic offers should get your attention. If you can stand collecting a fat dividend while you wait for management to muddle through the current soft patch, as it has done many times before, now could be a great time to dive in.
