Medtronic, Inc. (NYSE:MDT)‘s Strong Dividend Growth
One of the healthcare companies that can promise huge dividend growth is medical appliances and equipment maker Medtronic, Inc. (NYSE:MDT). This company has increased its annualized dividend payment by an average rate of over 29% in the past 3 years. It had significantly cut its payout in 2009 by 26% but had bounced back with a vengeance in 2010, increasing its payout by roughly 44%. This robust dividend growth continued to transpire up to the latest quarter. Meanwhile, Medtronic, Inc. (NYSE:MDT) continues to grow in revenues albeit, at a slow pace of 2.78% in the first quarter of 2013. In comparison, the revenue growth in the same period last year was only 1.58%. Nevertheless, the company makes up for this through its high margins; its net profit margin for that quarter ending in January31, 2013 was 24.5%.
But is the current dividend safe? To answer this question, one needs to look at the performance of its core business and the payout ratio. Medtronic, Inc. (NYSE:MDT)’s net operating cash flow swelled by 19.5% in 2012 while its free cash flow grew by an impressive 30.8%. At a payout ratio based on cash flow of 22.8%, I believe the company will be able to sustain a strong growth in dividends in the near future.
One of the possible key sources of growth for the device maker in the future is its renal denervation system, a minimally invasive therapy for people suffering from high blood pressure. Currently, it is available in some parts of Europe, Asia, Australia, the Americas, and Africa. It is available in the U.S. only for investigation purposes. If and when Medtronic, Inc. (NYSE:MDT) gets U.S. approval, this will mean a lot for this renal denervation front-runner. Medtronic has a P/E ratio of 15.14, significantly lower than the industry’s 27.10. This pricing is relatively low given its growth potential. It has earned more upward than downward revisions in its EPS for end of the current fiscal year.
Source: Nasdaq.com
With the population getting older by the day, the healthcare industry is a solid investment option. And staying with market leaders like UnitedHealth Group Inc. (NYSE:UNH), WellPoint, Inc. (NYSE:WLP), and Medtronic, Inc. (NYSE:MDT) is the best strategy one can make. Their appeal stems from their relatively low price in comparison with their respective industries, the undeniable growth potential, and attractive dividend performances.
(Data sources: nasdaq.com, marketwatch.com, finviz.com and ycharts.com; Data retrieved May 11, 2013, PE ratios updated June 9,2013)
The article These Healthcare Stocks Pay Fast-Growing Dividends originally appeared on Fool.com and is written by Aubrey Tabuga.
Aubrey Tabuga has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group and WellPoint. The Motley Fool owns shares of Medtronic and WellPoint. Aubrey 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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