ResMed Inc. (NYSE:RMD) only began paying a dividend in 2012 ($0.17/quarter), but I’d consider it a pretty encouraging sign that the company has already decided to boost its payout by 47% just a year later.
A sneaky play
Sometimes the highest-yielding or most obvious plays may not make the best choices for an income investor. In this case I have absolutely nothing against any of the aforementioned medical-device makers from an income perspective, but I think investors looking for medical device growth and dividend income would be doing themselves a disservice by not taking a closer look at Johnson & Johnson (NYSE:JNJ).
Johnson & Johnson (NYSE:JNJ) is a fully global diversified health-care company operating out of three segments: pharmaceutical, health-care products, and medical devices. Just last year, Johnson & Johnson (NYSE:JNJ) completed a hefty $19.7 billion purchase of Synthes, which filled one of the few voids in J&J’s dominant growth scheme: exposure to implantable device sales in emerging markets. With J&J you get a company that’s raised its payout for 51 consecutive years and is currently yielding what would be a sector-topping 2.9%.
Source: Nasdaq.com.
*Assumes quarterly payout of $0.66 for remainder of 2013.
One medical-device maker to avoid
While it’s certainly far from a disaster case, I believe income seekers looking at orthopedic reconstructive-device maker Zimmer Holdings, Inc. (NYSE:ZMH) would be better served looking elsewhere. From a cash perspective, Medtronic, Inc. (NYSE:MDT) and ResMed Inc. (NYSE:RMD) both carry net cash positions, while Smith & Nephew plc (ADR) (NYSE:SNN) and Zimmer Holdings, Inc. (NYSE:ZMH) both lug around net debt positions. Zimmer’s net debt of $450 million, though, is more than double that of Smith & Nephew and acts as an added drag when it comes to raising its dividend or making earnings-accretive acquisitions.
Another recent concern is Zimmer’s loss in court with regard to a surgical irrigation patent dispute with Stryker, which saw $228 million in damages and interest levied against the company. There seems to be little reason for Zimmer Holdings, Inc. (NYSE:ZMH) to boost its dividend meaningfully, given this litigation and its already high debt levels. I can think of plenty of places to get a 1% yield or better, and Zimmer is not one of them.
The article The 3 Highest-Yielding Dividends Among Medical-Device Makers originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends Johnson & Johnson. It also owns shares of Medtronic, and Zimmer Holdings.
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