The terms "dividend" and "healthcare stock" usually aren't mentioned in the same sentence. They're almost unavoidable together when talking about Medtronic (MDT 0.53%), however. The company is not only a regular dividend payer, but also a frequent raiser, having lifted its distribution for 48 years in a row. But this is far from its only advantage.
The medical device king
Medtronic offers a wide range of products for treating various and sundry medical conditions. This makes the company's stock highly recession-resistant, as spending on essential procedures and care is often non-negotiable for people with health issues.
Image source: Getty Images.
The fundamentals tell the tale. Since 2000, Medtronic has seen declines in annual revenue only twice. And these weren't very dramatic -- the fiscal year 2020 fall of 5.4% was due to the onset of the COVID pandemic (in which medical facilities prioritized care for the disease), while unfavorable currency movements and supply chain issues pushed 2023 revenue down by 1.4%.
Over the years, management has been adept at growing the company into a major supplier to the most significant healthcare segments. All four of its current business units -- cardiovascular, medical-surgical, neuroscience, and diabetes -- generate strong revenue streams (although the relatively low-margin diabetes unit will soon be spun off).
In terms of profitability, Medtronic's bottom line can be somewhat up-and-down (due to factors like the company's pricey -- almost $43 billion -- acquisition of peer medical device company Covidien in 2015). Nevertheless, it has posted annual net income for more than 60 years in a row. That kind of record would be the envy of any business, large or small, in any industry.
What decidedly isn't up-and-down is the company's dividend. That 48-year raise streak is hard to beat, particularly in a sector that isn't exactly renowned for remunerating shareholders. In addition to being consistently on the rise, the distribution is generous -- it currently yields nearly 3%, more than double the average of all S&P 500 component stocks.
Underappreciated
Given Medtronic's ability to grow the top line and fund an ever-rising dividend, it might be surprising to learn that its stock has underperformed the benchmark S&P 500 index for years.
There are numerous reasons for this, not least management's habit of restructuring its business more frequently than most companies (I did say Medtronic was sprawling), and the attractiveness of healthcare companies with hotter and more compelling growth stories.
NYSE: MDT
Key Data Points
But there's something to be said for a steady business with a solid, nearly fortress-like position in its niche. And one with a future, too -- recently, for instance, Medtronic was granted clearance from the Food and Drug Administration (FDA) for its Hugo robotic-assisted surgery (RAS) system for use in certain types of urologic procedures.
In the coming years, I fully expect Medtronic to start outpacing the S&P 500, and the more it climbs, the more investors will notice and buy into it. I think it's wise to snap up shares of it before that occurs.
