Health Care Manager Medtronic (MDT) presents a conservative option for yield-seeking medical device investors.
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Founded in 1949, Medtronic is a medical device company that manufactures a variety of products, including cardiac devices, surgical tools, and insulin pumps.
With a current market cap of more than $117 billion, Medtronic is the largest of 139 stocks in IBD’s medical products industry group. The established nature of Medtronic’s business has allowed the company to pay regular dividends.
In late May, the company announced another dividend hike, bringing the quarterly dividend to 69 cents per quarter. This was the 46th year of increasing dividends, a trend that is not expected to stop anytime soon.
While there are stocks that pay better dividends, its 3.1% annualized return is solid. And conservative investors can take comfort in greater stability than many other high-yielding names. The company’s debt is rated A by S&P Global, placing it firmly in investment grade.
Strong earnings results overshadowed by bleak forecasts
Medtronic announced its fourth quarter results on May 25, which saw EPS of $1.57. This was only a 3% increase over the prior year period, but continued a trend of improving earnings. Revenue rose 5.6% to $5.6 billion, beating analysts’ estimates.
Despite strong earnings, Medtronic shares fell as the company issued a weak forecast. It forecast profit for the year ending April of $5.06, down from $5.20 in its previous forecast. Softer macroeconomic conditions, including inflation, currency headwinds and interest rates, were cited as reasons for the revision.
A bleak outlook with no specific company weaknesses could be positive for new investors, as Medtronic sets a pretty low bar to beat.
The conservative stance – as also evidenced by the slight increase in the dividend – prepares the company well in the event of a recession. This is especially the case as the majority of the company’s devices are irreplaceable in healthcare.
Medtronic shares are forming a flat base, trading above the 50- and 200-day moving averages, with a buy point of 92.02, according to MarketSmith’s pattern recognition.
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