With 49 years of consecutive dividend increases under its belt, Medtronic is one year away from becoming a Dividend King.
Dividend growth has slowed recently, but the MiniMed spinoff could get dividend growth back on track.
Medtronic's pivot toward higher-margin segments of the medical device and technology could also lead to a re-rating of the stock.
Medtronic (NYSE: MDT) has raised its quarterly dividend for 49 consecutive years. This means the medical device and technology company is just one year away from earning Dividend King status, which is reserved for stocks with at least 50 years of consecutive annual dividend growth.
Last June, Medtronic raised its quarterly dividend to $0.72 per share, yielding an annualized dividend of $2.88 per share. With this in mind, how many shares would you need to own to generate $1,000 per year in annual dividend income?
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Based on the annualized dividend of $2.88 per share, an investor would need to own roughly 348 shares of Medtronic. This position would generate $1,002.24 in annual dividend income. Based on Medtronic's current stock price, you would need about $32,792 to buy those 348 shares. Investing in Medtronic shares right now would yield around 3% annually.
Although Medtronic's dividend increases lately have been modest, with a 1.4% increase this year and an average 2% increase over the past three years, there is potential for larger dividend increases in the years ahead.
Last March, Medtronic took MiniMed Group (NASDAQ: MMED), its lower-margin diabetes business, public. Just this week, the company completed its spinoff of MiniMed, via an exchange offer.
Post-spinoff, Medtronic can now focus more on its higher-margin cardiovascular, neuroscience, and surgical businesses. Moreover, with MiniMed trading at a higher earnings multiple, the spinoff points to steady earnings growth. Analyst estimates call for earnings growth of 8.1% and 7.1%, respectively, during the fiscal years ending January 2027 and January 2028.
With its forward payout ratio already at a reasonable 48%, upper-single-digit earnings growth could pave the way for larger dividend increases than in the recent past. Alongside the prospect of improved dividend growth, investors could also reward Medtronic, trading at the midrange of valuations among medical device stocks, with a higher valuation.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Medtronic. The Motley Fool has a disclosure policy.