1 Dividend Aristocrat to Buy at a Discount This September

As chronic illnesses rise and technology leaps forward, the demand for cutting-edge medical devices intensifies. Medtronic plc (MDT), a leader in this field, stands out by leveraging artificial intelligence (AI) to revolutionize device development and refine robotic surgeries. This innovative approach enhances the efficiency and effectiveness of its offerings, positioning Medtronic at the forefront of transforming healthcare tech.

Investors are still waiting on the Fed’s first rate cut after a lengthy high interest rate regime, which means markets are on edge this week in response to a string of softer economic data. But with its solid business model and nearly five decades of consistent dividend payout increases, MDT’s dependable dividends and appealing valuation make it a standout choice for investors seeking reliable returns and relative stability amid market turbulence.

About Medtronic Stock

Dublin-based Medtronic plc (MDT), boasting a market cap of $114 billion, excels in medical devices, offering innovations across the diabetes, cardiovascular, and neuroscience segments. Known for its leadership in AI integration, Medtronic boasts FDA-approved AI products like GI Genius for endoscopy and MiniMed 780G for diabetes management. With a newly launched AI center of excellence, the company is at the forefront of medical tech advancements, serving global healthcare systems, clinicians, and patients.

Shares of the MedTech leader have rallied 8.3% over the past 52 weeks, and MDT set a new 52-week peak of $90.13 as recently as Aug. 26. 

In terms of valuation, the stock is priced at 16.17 times forward earnings and 3.51 times sales, which is a discount to its medical device industry peer, Boston Scientific Corporation (BSX). MDT's current valuations are also lower than its historical averages, suggesting that now is a good time to pick up shares at a bargain.

Medtronic’s Dividend History

For 47 years, Medtronic has consistently paid and increased its quarterly dividends, earning its place as a Dividend Aristocrat - and on pace for Dividend King status before the end of the decade. 

On Aug. 15, the medical device giant declared a quarterly dividend of $0.70 per share, payable to shareholders on Oct. 11. This translates to an annualized payout of $2.80 per share.

With a forward yield of 3.16%, far above the S&P’s 1.21%, and a payout ratio of 52.7%, Medtronic’s dividends are well-secured by earnings, making it a solid pick for income seekers.

Medtronic Rises on Q1 Earnings Beat

Shares of Medtronic edged up following its solid fiscal Q1 earnings results, unveiled on Aug. 20. Revenues grew 5.3% annually on an organic basis to $7.92 billion, while adjusted EPS of $1.23 rose 2.5% year over year. Both earnings and revenue surpassed consensus estimates.

Innovation remains a key driver for Medtronic’s success. Over the past year, the company has rolled out many new devices, earning regulatory nods and gaining traction in the market. The MiniMed 780G automated insulin delivery system was a standout, receiving Food and Drug Administration (FDA) approval in 2023, and fueling a 12.6% jump in organic sales within the diabetes segment to $647 million. This rebound was crucial, especially after the Diabetes division faced setbacks from the 2021 recall of the MiniMed 600 series.

Medtronic's cardiovascular segment is also thriving, boasting 6.9% organic growth to $3 billion on the back of strong performances across cardiac pacing therapies, surgery, defibrillation, and coronary solutions.

Medtronic’s cash flow generation was strong during the quarter, with net cash from operating activities climbing 12.7% to $986 million and free cash flow hitting $466 million, and cash and cash equivalents totaling $1.3 billion as of July 26, 2024. This underscores the company’s ability to continue delivering steady dividends.

For fiscal Q2, management anticipates mid-single-digit top-line growth, with organic revenue up around 4.5% and EPS expected between $1.24 and $1.26. Looking ahead, management forecasts fiscal 2025 revenue growth between 4.5% and 5%, up from the prior range of 4% to 5%. Plus, the low end of MDT’s adjusted EPS guidance has been bumped up to $5.42-$5.50. 

Analysts tracking Medtronic predict the company’s profit to rise by 5% annually to $5.46 per share in fiscal 2025, with another 6.8% increase to $5.83 projected for fiscal 2026.

What Do Analysts Expect for Medtronic Stock?

After Medtronic’s Q1 earnings release, most analysts reiterated their respective outlooks on MDT, with a few adjustments. Piper Sandler maintained its “Overweight” rating and raised its price target from $85 to $90, while Mizuho likewise backed its “Overweight” rating and upped its price target to $98, with analyst Anthony Petrone noting that “the pieces continue to fall into place.”

On the other hand, Goldman Sachs maintained a “Sell” rating with a price target cut to $82 from $83, as analyst David Roman wrote, “Overall, we acknowledge the progress the company is making across multiple fronts but continue to see the revenue/EPS growth outlook at 4-5%/6-7%.”

MDT has a consensus rating of “Moderate Buy” overall. Out of 28 analysts in coverage, 10 advise a “Strong Buy,” one recommends a “Moderate Buy,” 15 suggest a “Hold,” and two say it’s a “Strong Sell.”

The mean price target for MDT of $93.43 implies a potential upside of about 5% from current levels. The Street-high estimate of $106 suggests the stock could rally as much as 19.2%.