Medtronic, Inc. (MDT): Should You Buy This Dividend Aristocrat?

The alternatives aren’t much better

Trying to find an alternative medical technology stock with a more attractive dividend than Medtronic, Inc. (NYSE:MDT) appears to be a fool’s errand. The larger Abbott Laboratories (NYSE:ABT), which recently completed the spin-off of the drug maker AbbVie Inc (NYSE:ABBV), pays a lower dividend than Medtronic. Pre-spinoff the quarterly dividend sat at $0.244 per share, but that was cut to $0.14 per share after the spin-off. Abbott Laboratories (NYSE:ABT) seems to have lost one of its big cash cows with the AbbVie Inc (NYSE:ABBV) spin-off, and dividend growth going forward is fuzzy at best. But with a yield of just 1.53% the required dividend growth for the stock to be attractive is likely higher than we’ll see. Incidentally AbbVie Inc (NYSE:ABBV) pays a 3.5% dividend, but it’s not in the same business as Medtronic so I won’t consider it here.

A smaller medical technology company is Stryker Corporation (NYSE:SYK), but the story is much the same. Stryker Corporation (NYSE:SYK) pays a 1.59% dividend, and much like Medtronic the company has an extremely low payout ratio and has ramping up its share buyback program. Stryker Corporation (NYSE:SYK)’s most recent dividend increase was a solid 24.7%, so it seems that Stryker may give you higher dividend growth going forward compared to Medtronic. But the yield is quite a bit lower, and the preference for buybacks should be concerning to the dividend investor.

The bottom line

Medtronic is a cash machine, but it just doesn’t fit the bill as a dividend stock. In most cases buybacks are good for dividend stocks since they lower the payout ratio, but when dividend growth is sacrificed in favor of increased buybacks it becomes clear that the company has no intention of making the dividend truly attractive. It also clouds the future dividend growth rate, since the company is capable of raising the dividend significantly but likely won’t. Without a true focus on the dividend Medtronic, Inc. (NYSE:MDT) is a tough sell as a dividend stock.

The article Should You Buy This Dividend Aristocrat? originally appeared on Fool.com and is written by Timothy Green.

Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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