Investors who want to cash in on Medtronic plc’s (NYSE:MDT) upcoming dividend of US$0.50 per share have only 4 days left to buy the shares before its ex-dividend date, 27 September 2018, in time for dividends payable on the 19 October 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Medtronic’s latest financial data to analyse its dividend attributes.
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How does Medtronic fare?
The company currently pays out 80.5% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 37.8%, leading to a dividend yield of 2.1%. However, EPS should increase to $3.9, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. MDT has increased its DPS from $0.75 to $2 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Medtronic produces a yield of 2.0%, which is high for Medical Equipment stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, Medtronic is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three essential factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for MDT’s future growth? Take a look at our free research report of analyst consensus for MDT’s outlook.
- Valuation: What is MDT worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MDT is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.