Started A Position in Medtronic (MDT)

Introduction

Medtronic had been a company on my watchlist for a while now.  My concern was around valuation, they traded at 19-20x full years earnings a few months ago.  After the earnings release on 11/22 the stock promptly dropped close to 10% the next day and I started a position at $73 a share.  At that price, it puts the valuation at 15-16x earnings which is much more up my alley.  Additionally, this is a dividend champion – they have not only paid – but have raised their dividend for 39 years!  Incredibly impressive and to get shares at a level matching the historical value of the market I will take that any day of the week.

Fast Graphs

medtronic fast graph

As you can see in the Fast Graph, the company had a long stint of being out of favor with the market even though earnings kept growing throughout the entire Great Recession!  Had I known what I know now back then, I would have bought a lot of stock back then.  In any event, the company is still expecting good earnings growth, 6% this year, 12% next year.  As I’ve mentioned in the past I am hesitant with accepting growth rates as fact as they would be predicting the future, so I will take them with a grain of salt.  My starting position gives me a yield of 2.35%, which is a little better than the S&P as a whole.

Simply Safe Dividends

medtronic payout ratio

The company historically maintains a low payout ratio, it recently jumped up due to the acquisition of Covidien.  The company sports a 5 year dividend growth history of 9.8%.  Imagine getting a nearly 10% raise every year, I know I don’t get that!  They’ve also paid their current dividend for 2 quarters so by the July payment it should be the new, higher dividend.

medtronic simply safe dividend score

Lastly to point out, using Simple Safe Dividend’s scorecard, the company rates quite highly in both safety and growth.  Additionally, this score in the middle of the pack for yield – which as I pointed out is quite OK!  I will trade some current yield for what should be market beating dividend growth – and quite possibly – total return.

One neat aside, the company has approval for the world’s first artificial pancreas!

Added More Shares After CVS Earnings Drove The Stock Down 15%

Q3 Earnings Results

CVS Health (CVS) Q3 results: Revenues: $44,615M (+15.5%); Operating Income: $2,817M (+20.8%); Net Income: $1,542M (+24.7%); EPS: $1.43 (+30.0%); Non-GAAP EPS: $1.64 (+28.1%); Quick Assets: $2,263M (-11.2%); CF Ops: $7,948M (+64.2%).

Q4 Guidance: GAAP EPS: $1.52 – 1.58; Adjusted EPS: $1.64 – 1.70.

2016 Guidance: GAAP EPS: $4.84 – 4.90 from $4.92 – 5.00; Adjusted EPS: $5.77 – 5.83 from $5.81 – 5.89; CF Ops: $9.3B- 9.5B; FCF: $6.8B – 7.0B.

2017 Preliminary Outlook: GAAP EPS: $5.16 – 5.33; Non-GAAP EPS: $5.77 – 5.93.

Shares are down 15% premarket.

Why?

At first glance – all good right?  Revenues up 15.5%, earnings up 30% year over year and the company guided to a good Q4.  Shares down 15% premarket!?!?  So the big story is how management guided down substantially for 2017.  It appears rival Walgreens took some business unexpectedly which is expected to drive overall earnings down.  Still, taking the lower end of guidance, the stock is trading at 15x 2017 GAAP earnings.  It only looks cheaper at either the higher end of guidance or using non-GAAP figures.

Also of note, the company authorized an additional $15B in stock buybacks which at current prices could be one of the better executed buybacks in recent history.  Also the company is due to raise their dividend in December!

Simply Safe Dividends

cvs_ssd

The company ranks extremely highly in the Simply Safe Dividends database.  They’ve had incredible 20% yearly growth for 5 years now and in terms of free cash flow, the payout is quite low.  Additionally with the expected hike coming the overall yield figure should see a nice boost.  Long story short, I used the opportunity presented to buy some more shares.  I’ll collect a very safe and growing dividend while the story line plays out.

Fast Graphs

Here is also a Fast Graph showing the companies now undervaluation compared to historical norms.

cvs_fg

A good recent article about CVS can be found here.

October 2016 Dividend Income – $209

Dividend Update

Now that October is in the books, here is the income that I received over the month.  I’ve crossed over the $200/mo mark for the first month in a quarter.   I earn the majority of my dividends in the third month of ever quarter.  Occidental is struck through because I have since sold the position though I received the income.  My full article for October can be found here.

Here is my October 2016 dividend income:

NameOct
Altria57.83
Cardinal Health17.96
Cisco Systems31.46
Diageo PLC36.93
JPMorgan Chase14.4
Nike8.02
Occidental Petroleum32.62
Realty Income4.04
STAG Industrial5.79
209.05