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.
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
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.
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!