Medtronic Gives us a Raise of 13.16%

On July 27th Medtronic (MDT) gave us a dividend payment of $24.84  (43 cents X 57.772 shares) which also represented a raise of 13.16%. While we’re not blown away by MDT’s current yield of 1.96%, we’re certainly excited about how strong their dividend growth has been over time. Here’s their historical dividend increase growth over the past 10 years:

MDT Dividend Growth

While the current yield of 1.96% wouldn’t tickle the fancy of most dividend growth investors, we’re more than happy with the notion that if the dividend continues to grow at this rate, here’s what our yield would grow to in 5 years’ time:

  • 2016: 1.96%
  • 2017: 2.23%
  • 2018: 2.54%
  • 2019: 2.89%
  • 2020: 3.29%
  • 2021: 3.74%

We’re plenty happy to take reduced yield now with the promise of rapid growth. What we’re concerned about is whether or not MDT can keep up this growth over the next 5 years and beyond. One key metric to keep an eye on is the payout ratio:

MDT Payout Ratio

The payout ratio trending upwards is not what we want to see, still at 60% it remains low enough to give us a sufficient buffer for future raises. However if MDT is not increasing their earnings per share by the same rate or more than their dividend growth, then the party has to come to an end eventually. Medtronic seems to be making regular acquisitions over the years, and in a recent investor conference they outlined exactly where they expect their growth to come from:

MDT Growth Profile

The nicest thing about our Quantigence methodology is that we have very little to do if our companies are maintaining their high Q-scores and continuing to give us big raises every year. Medtronic just gave us a raise in line with what we were expecting based on historical precedent, so we’re happy to wait another year and then check in to see how much progress they are making with the growth initiatives they’ve outlined above. We’ll continue to buy $450 worth of MDT shares per month which will give us a target position size of $13,333 in 2 years’ time.

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