I am not a scientist or a medical doctor, so I'm a bit leery of buying healthcare stocks. I've actually outsourced this task to BlackRock Health Sciences Trust (BME 1.66%), a high-yield closed-end fund that uses a covered-call strategy.
But there's one healthcare stock that was attractive enough for me to buy on my own: Medtronic (MDT 1.65%). Here's why, and why I'm planning to pass it on to my heirs eventually.
What does Medtronic do?
Medtronic is one of the world's largest medical device companies. It has a diversified portfolio, operating across the cardiovascular, neuroscience, and medical-surgical spaces. It also has a material diabetes business, but that's about to be spun off as Medtronic refocuses on its highest-profit, fastest-growing operations. The key, for me, is that Medtronic isn't a one-trick pony even when you take the spinoff into consideration.
Image source: Getty Images.
And the company has a proven track record of innovation in a highly technical industry. The Hugo surgical robot is a great example of this right now, as Medtronic leans into a fast-growing medical market. However, that's hardly the only innovative thing it's working on. The truth is, I don't fully understand everything the company is doing. But given its long history of success, I trust that it's working at the leading edge of the markets it serves.
The dividend record is impressive
Medtronic is now up to 48 annual dividend increases, which is impressive and puts it within striking distance of joining the list of Dividend Kings (companies with 50 or more annual dividend hikes). A company can't build a dividend record like that by accident; it requires a strong business model that gets executed well in both good times and bad. That's the history that I think proves Medtronic is worth holding forever.
NYSE: MDT
Key Data Points
The trick is to buy shares while they're on sale, which doesn't happen very often. While the stock isn't as attractive now as when I bought it, the current dividend yield of nearly 3% is still on the high side historically. Notably, the company is starting to see the early benefits of its shift toward growth. For example, management is calling for revenue growth of 5.5% in fiscal 2026, which is a solid target for a business with a $120 billion market value.
Compounding for the future
I'm not yet retired, so I'm reinvesting Medtronic's dividends and letting compounding build my wealth. When the time comes, I'll start using those dividends to pay my bills. And at some point, I hope to pass this proven leader in the healthcare industry on to my daughter so she can benefit from owning it, just as I have.
