Is Medtronic Stock a Good Investment?

Medtronic, a leading player in the medical device industry, has proven to be a strong performer for its long-term investors.

This U.S. and Ireland-based company is among the largest in its field, offering a wide range of products that include advanced hospital equipment and devices focused on cardiovascular health and diabetes management.

Medtronic's consistent success has allowed it to reward its shareholders with regularly increasing dividends. With 47 consecutive years of dividend hikes, the company is nearing the esteemed 'Dividend King' status.

Over the past fifty years, including reinvested dividends, investors in Medtronic have witnessed a staggering total return of nearly 60,000%, equating to a nearly 600-fold increase. However, the stock currently trades over 20% lower than its peak price achieved in September 2021. So, is now the right time to buy Medtronic stock?

Medtronic's Steady Growth

Medtronic derives roughly half of its revenue from the United States, which represents the world's most profitable healthcare market. The remaining revenue comes from international sales, including fast-growing emerging markets. For instance, international sales saw a 7% increase last quarter, while U.S. sales grew by 3.3%. The company’s operations are divided across several segments, with the majority of revenues stemming from its cardiovascular, neuroscience, and surgical divisions, and a smaller contribution from its diabetes branch.

This diversity helps provide stability for the company. During the pandemic, many medical procedures were postponed or canceled, leading to Medtronic's first decline in sales in over 35 years. However, this underscores a trade-off, as while Medtronic maintains stability, rapid growth is not part of its strategy. Analysts predict the company's earnings to increase by only 6.5% annually over the next three to five years.

This level of growth could still support continued dividend increases and modest appreciation in the share price. Those looking for quick gains should perhaps consider other options.

Maximizing Returns with Medtronic

Investing in dividend stocks often doesn’t lead to overnight wealth. Instead, this approach is a gradual journey that requires patience.

Medtronic may not fit the profile of a high-growth stock, but it stands out as a well-established business with steadily increasing profits and dependable dividends. With a current dividend yield of over 3%, combined with earnings growth of 6% to 7%, investors can expect average annual returns of around 9% to 10%. While these figures aren't extraordinary, Medtronic consistently outperforms many stocks in terms of reliability. This dependability translates into value. To further enhance investment returns, consider reinvesting dividends.

By using dividends to purchase more shares automatically, investors can unlock significant compounding benefits, ultimately generating considerable wealth over time.

Should You Buy Medtronic Now?

It's crucial for investors to avoid overpaying for dividend stocks, as it often takes significant time for their fundamental growth to compensate for an inflated valuation.

Medtronic has been somewhat overlooked in a market that has been focusing heavily on technology stocks. Currently, its shares are trading at a price-to-earnings (P/E) ratio of 15.8. While its price/earnings-to-growth (PEG) ratio stands at 2.4, which is slightly on the higher side, high-quality stocks are often still considered worthwhile with PEG ratios between 2.0 and 2.5. A lower PEG ratio typically signifies better value by providing more anticipated earnings growth per dollar spent. Blue-chip dividend stocks usually command higher valuations due to their established reliability, even if their anticipated growth appears modest. Additionally, earnings projections are often educated estimates.

Medtronic’s stock may not be an astounding bargain at present, yet it represents a solid business at a fair price. Therefore, it is safe to endorse Medtronic as a reliable buying option, particularly for long-term investors who are inclined to hold onto their shares and reinvest their dividends.

Note: The views expressed in this article are for informational purposes only and do not constitute financial advice.

Medtronic, Investment, Dividend