(MDT) Medtronic Hikes Dividend

Leading medical device player, Medtronic (MDT) announced a 7.2% increase in its cash dividend for fiscal 2013. With this hike, the dividend for the quarter comes to 26 cents per share or $1.04 per share for fiscal 2013, up from 97 cents in the previous fiscal.

The increased dividend will be paid on July 27, 2012, to stockholders of record on July 6, 2012. Medtronic has been paying dividends consistently, which has more than doubled over the past five years. In fact, this marks the 35th consecutive year of increasing dividend. The previous dividend hike of 8% to 24.25 cents was announced in June 2011. Accounting for the most recent hike, the dividend yield comes to 2.75% while the payout ratio is 30%.

Medtronic’s strategy is to return 50% of free cash flow to shareholders through dividends and share repurchases. During fiscal 2012, the company generated free cash flow of approximately $4 billion and paid over $1 billion in dividends besides repurchasing $1.4 billion worth of shares (including shares repurchased to offset the dilutive impact of the divestment of the Physio-Control business).

During the recently held Analyst Day, the company announced its target to generate $25 billion in free cash flow over the next five years ($17 billion generated in the past five years). Additionally, attempts would be made to increase the proportion of cash generated in the US to counter the imbala

nce caused by more cash being generated outside US.

Medtronic’s peer, St. Jude (STJ) beefed up its quarterly dividend to 23 cents a share from 21 cents, representing a 10% hike in February 2012. This lifted the annual dividend to 92 cents per share from the previous payout of 84 cents and equates to a dividend yield of roughly 2.5%, lagging the yield of Medtronic.

Medtronic reported a strong fourth quarter with both revenues and adjusted earnings per share exceeding the Zacks Consensus Estimates. While the core segments of ICDs and spinal implants continue to bother, the situation is gradually stabilizing. We are encouraged by Medtronic’s focus on portfolio expansion along with an aim to boost revenues from the emerging markets.

Recently launched products such as Resolute and the Revo MRI SureScan pacemaker have enabled the company to increase its share in the respective markets. Disappointing Infuse sales, however, continue to affect the beleaguered Spinal segment.

We have a Neutral recommendation on Medtronic. The stock retains a Zacks #3 Rank (hold) in the short term.

MEDTRONIC (MDT): Free Stock Analysis Report

ST JUDE MEDICAL (STJ): Free Stock Analysis Report


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