As I say every week when I highlight one outstanding dividend-paying stock, “Dividend stocks are everywhere, but many just downright stink!”
It’s not hard to locate a company willing to return at least some of its profit to shareholders, but finding one that will return a meaningful amount, and that shows the ability to grow that payout consistently over time, is the real challenge.
Today, I propose we take a closer look at the health-care industry, specifically the medical-device sector, which should become a big area of growth in the coming decades.
Source: Steven Fruitsmaak, Wikimedia Commons.
Why medical devices?
Two factors stand ready to drive medical device growth. First, an aging baby boomer population is almost certainly going to create a growing need for everything from implantable devices like hip and knee joint replacements to products such as insulin pumps. Demand for medical devices is also very inelastic, meaning pricing power and profits are almost assured to go up for a myriad of medical device makers.
The other growth driver is the Patient Protection and Affordable Care Act, which is set to be implemented on an individual basis by Jan. 1. Although this bill, known better as Obamacare, does mandate a 2.3% medical-device excise tax on top-line revenue and reduce profitability for device makers across the board, it also should bring millions of previously insured individuals into the fold. which may translate into more doctor’s visits and a higher number of medical procedures. In essence, a little pain now for a big gain later!
The three highest-yielding medical-device stocks
With that being said, let’s have a look at the three highest-yielding dividend stocks within the medical-device sector.
Smith & Nephew plc (ADR) (NYSE:SNN): 2.6% projected forward yield
Smith & Nephew plc (ADR) (NYSE:SNN) is a U.K.-based medical-device maker that targets orthopedic reconstructive implants such as hip and knee replacements, and advanced wound management care products such as Durafiber and Acticoat for infection prevention. In the most recent quarter, Smith & Nephew plc (ADR) (NYSE:SNN) delivered double-digit emerging-market growth (something my Foolish colleague Dan Carroll recently pointed out), while weak European growth caused sales in that region to be flat. Its sports medicine segment also delivered solid growth of 6%.
Although Smith & Nephew plc (ADR) (NYSE:SNN) pays its dividend on a semiannual basis, which can certainly vary from payment to payment, there has been an undeniable trend higher in its annual payout, which is up about 195% over the trailing decade.
Source: Nasdaq.com.
*Based on trailing 12-month payout and assumption of $0.495 payout in second half of 2013.
Medtronic, Inc. (NYSE:MDT): 2% projected forward yield
Medtronic, Inc. (NYSE:MDT) is a medical-device company with a focus in two primary areas: cardiovascular implants (pacemakers, heart valve replacement technologies, etc.), and restorative therapies (it’s the largest producer of implantable spinal therapy devices). Medtronic, Inc. (NYSE:MDT) CEO Omar Ishrak has made no qualms about his company’s focus on emerging markets for growth with U.S. and European sales slumping in recent years. In Medtronic, Inc. (NYSE:MDT)’s fourth-quarter results we saw pacemaker and defibrillator sales rise by a steady 3% while spinal treatments and neuromodulation devices beat the retreat by 1% and 6%, respectively.
Medtronic has certainly been no slouch on the dividend front, either, and in June it boosted its annual payout for a 36th straight year, placing it among the market’s most elite dividend-paying companies. Since 2004, Medtronic, Inc. (NYSE:MDT)’s annual payout has grown by a whopping 234%!
Source: Nasdaq.com.
*Assumes quarterly payout of $0.28 for remainder of 2013.
ResMed Inc. (NYSE:RMD): 2% projected forward yield
Like the previous companies, ResMed Inc. (NYSE:RMD) has operations on a global scale, but unlike the preceding device makers, its focus is on medical equipment that helps diagnose and treat sleeping disorders. Whereas growth at Smith & Nephew plc (ADR) (NYSE:SNN) and Medtronic, Inc. (NYSE:MDT) has been slow-and-go in recent quarters, ResMed Inc. (NYSE:RMD) has seen sales take off. In its recently reported fourth-quarter results, ResMed Inc. (NYSE:RMD) delivered record quarterly revenue and income of $414.6 million and $86.2 million. Revenue in its Americas and combined Europe/Asia Pacific regions rose by 11% and 12%, respectively, with the company announcing a 47% increase to its quarterly dividend.
