We recently compiled the list of 25 Best Dividend Aristocrats Stocks According to Analysts. Since Medtronic plc (NYSE:MDT) is part of our list, we have analyzed the stock in detail.
The age-old debate of investing in dividend growth or high-yield stocks continues to reappear within the dividend investing realm. Between these two, dividend growth is currently the favored option in the market as investors seek out strategies to grow their income over time. In this regard, investors turn to dividend aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. These stocks have delivered strong returns over the years regardless of market conditions. Between February 2005 and December 2023, dividend aristocrats delivered a 12.50% return in falling interest rate periods and an 11.5% return in rising interest rate periods, according to data by Bloomberg.
Numerous analysts have pointed out the long-term potential of dividend growth stocks, a sentiment echoed by Warren Buffett’s investment in Coca-Cola. Back in August 1994, Berkshire Hathaway completed its acquisition of 400 million shares in the company, worth $1.3 billion. Berkshire initially received a cash dividend of $75 million from Coca-Cola in 1994, the amount which surged to $704 million in 2022. This shows a remarkable growth potential of dividend-paying investments over the long term.
With investors showing a growing preference for dividend-paying stocks, major tech companies started initiating their dividend policies this year. Mark Iong, an equity fund manager at Homestead Advisers, expressed his approval of this move by tech companies in one of his recent interviews with Bloomberg. Here are some comments from the analyst:
“Dividends will be table-stakes for big tech going forward. I think if you don’t pay one, it will now be taken as a sign your business is more volatile. What’s exciting is they are doing dividends and buybacks simultaneously, while also cutting costs and growing, which is them stepping on the pedal for profits across the board.”
Not limited to the tech sector alone, companies across the broader market are showing a strong commitment to dividends this year. Though these equities lagged behind the market last year, their outlook remains strong this year. According to a recent report by S&P Dow Jones Indices, in the first quarter of 2024, companies in the index paid $151.6 billion in dividends, up from $146.8 billion paid during the same period last year. In addition, 796 companies reported dividend hikes during the quarter, amounting collectively to $22.7 billion. Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, expects that the index will report a 6% year-over-year increase in dividend payments in 2024.
Now, let’s take a look at some of the best dividend aristocrat stocks to buy according to analysts.
Image by Steve Buissinne from Pixabay
Our Methodology:
For our list, we first scanned a list of the best dividend aristocrat stocks, which are the companies that have raised their dividends for 25 consecutive years or more. From this group, we picked stocks with a projected upside potential of over 10% based on analyst price targets. The stocks are ranked according to their upside potential, as of May 26. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Medtronic plc (NYSE:MDT)
Upside Potential as of May 26: 16.8%
Medtronic plc (NYSE:MDT) is 17th on our list of the best dividend aristocrat stocks. The medical device company declared a 1.4% hike in its quarterly dividend to $0.70 per share on May 23. Through this increase, the company stretched its dividend growth streak to 47 years. The stock supports an impressive dividend yield of 3.40%, as of May 26.
In its recently announced FY24 earnings, Medtronic plc (NYSE:MDT) reported an operating cash flow of $6.8 billion, which showed a 12% growth from the same period last year. Its free cash flow also increases by 14% on a year-over-year basis at $5.2 billion. During the year, the company returned $5.5 billion to shareholders through share repurchases.
At the end of Q1 2024, 54 hedge funds tracked by Insider Monkey reported having stakes in Medtronic plc (NYSE:MDT), compared with 56 in the previous quarter. These stakes have a collective value of over $2.2 billion. Among these hedge funds, First Eagle Investment Management was the company’s leading stakeholder in Q1.
Medtronic plc (NYSE:MDT) has a strong track record of delivering risk-adjusted returns to shareholders. For FY25, the company expects its organic revenue growth between 4% to 5%. Additionally, the company’s commitment to shareholders has remained consistent over the years. In the past 10 years, it has raised its dividend payouts by 130%. MDT shares actually lost around 15% of their value over the last year and currently trade at a forward PE of 15. Here is how Polen Capital explained MDT’s poor performance recently:
“Medtronic plc (NYSE:MDT) is the largest medical technology company in the world. Despite a few tough years characterized by post-COVID supply chain issues, Chinese market payment changes, and diabetes business challenges, the company has continued to invest aggressively in its R&D pipeline. Because of this long-term mindset and commitment to product innovation, the company is in a position today where it has numerous significant new product launches across the business, helping to accelerate growth and improve profitability. More recently, the market’s infatuation with the promise of GLP-1 drugs has resulted in valuation de-ratings across the medtech industry broadly, to which Medtronic was not immune. The combination of all of these factors has resulted in Medtronic shares trading at their lowest valuation in a decade. Given the emerging business momentum, we felt the valuation offers a compelling chance to increase our weight in the world’s largest medtech company.”
Overall MDT ranks 17th among the best dividend aristocrat stocks according to analysts, but it ranks below Abbvie. You can visit 25 Best Dividend Aristocrats Stocks According to Analysts to see other dividend aristocrats that are on analysts’ radar. While we acknowledge the potential of dividend growth stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.