Medtronic (MDT) Dividend Stock Analysis

Medtronic, Inc. (MDT) develops, manufactures, and sells device-based medical therapies worldwide. This dividend champion has raised distributions for 33 years in a row.

Over the past decade this dividend stock has produced a negative total return of 2.20% per year. The company was grossly overvalued in 2000, ending the year at a P/E of 68 which explains the poor returns over the past decade.


Earnings per share have increased by 14.10% per year since 2001. For FY 2011 analysts expect earnings to grow by 25.40% to $3.50, followed by an 8.60 % increase to $3.80 in FY 2012.


The annual dividend payment has increased by 17% per year since 2000, which was higher than the growth in earnings. The company has managed to achieve that by paying a higher portion of earnings to shareholders in the form of dividends. A 17% dividend growth translates in dividend payment doubling almost every 4 years on average. If we look at the company’s dividend history since 1977, the company has indeed managed to double quarterly dividend every 4 years on average.


The dividend payout ratio has increased from 24% in 2001 to 29% in 2010. Between 2002 and 2007 the company raised dividends at the pace of earnings growth, as evidenced by a stagnant payout ratio during the period. Since then however the company has started to raise dividends at a much higher rate, which indicates that there are high chances that investors could realize a high yield on cost in the future.

Returns on equity have remained above 19 for the majority of the past decade. Overall the ROE increased steadily over the past decade.

Overall Medtronic looks attractively valued at a P/E of 12.80, an adequately covered dividend and a yield of 2.50%. In comparison rival CR Bard (BCR) has a P/E of 16.50 and yields 0.90%, while rival Becton Dickinson (BDX) yields 2.10% and trades at a P/E of 14.10. While the stock has gone nowhere for one decade, the company has managed to more than triple earnings per share, which makes it a bargain at current prices. Many companies like Medtronic (MDT), Johnson & Johnson (JNJ) and Becton Dickinson (BDX) were overvalued in 2000, which explains why buy and hold dividend investing didn’t work as well over the past decade. If Medtronic’s earnings growth managed to be half as good as it were over the past decade, the stock could do well over the next decade.

Full Disclosure: Long JNJ and MDT

Relevant Articles:

- 33 Dividend Champions to Consider

- Buy and hold dividend investing is not dead

- Four Percent Rule for Dividend Investing in Retirement

- Three Dividend Strategies to pick from

The New Dividend Achievers of 2010

The dividend achievers index consists of US stocks which have raised their dividends each year for at least a decade. Over the past 20 years, this index has managed to outperform the S&P 500 by half a percentage point annually. The dividend achievers index is a great list of dividend stocks as a start. After applying criteria specific to one’s investment strategy, a manageable list for further research could be easily generated. For busy investors who would rather not have their hands dirty, there are several dividend etfs focusing on the dividend achievers. One such option is the Powershares Dividend Achievers (PFM) ETF. Another option is the Vanguard Dividend Appreciation ETF (VIG).

The index is rebalanced every year by deleting companies which have cut or eliminated distributions as well as the ones that have been acquired. Earlier in 2010 the newest addition to the index were announced:

Altria Group, Inc. (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. The stock yields 6.30% and trades at a P/E of 13.60. (analysis)

Atlantic Tele-Network, Inc. (ATNI), through its subsidiaries, provides wireless and wireline telecommunications services in North America and the Caribbean. The stock yields 1.70% and trades at a P/E of 24.

Casey’s General Stores, Inc. (CASY), together with its subsidiaries, operates convenience stores under the Casey’s General Store, HandiMart, and Just Diesel brand names in the Midwestern states. The stock yields 1.00% and trades at a P/E of 16.70.

EOG Resources, Inc.(EOG), together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas and crude oil. The stock yields 0.60% and trades at a P/E of 49.60.

FactSet Research Systems Inc. (FDS) provides financial and economic information on various companies, analytical applications, and client services to the portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers, and fixed income professionals worldwide. The stock yields 1.20% and trades at a P/E of 25.80.

Graco Inc. (GGG), together with its subsidiaries, provides fluid handling solutions to manufacturing, processing, construction, and maintenance sectors worldwide. The stock yields 2.50% and trades at a P/E of 24.30.

Hudson City Bancorp, Inc. (HCBK) operates as the bank holding company for Hudson City Savings Bank that provides a range of retail banking services. The stock yields 4.90% and trades at a P/E of 10.60.

Murphy Oil Corporation (MUR) engages in the exploration and production of oil and gas properties worldwide. The stock yields 1.70% and trades at a P/E of 13.40.

Northeast Utilities ( NU), a public utility holding company, engages in the energy delivery business for residential, commercial, and industrial customers in Connecticut, New Hampshire, and western Massachusetts. The stock yields 3.50% and trades at a P/E of 16.70.

NSTAR (NST), through its subsidiaries, engages in the distribution, transmission, and sale of energy in Massachusetts. The stock yields 4.20% and trades at a P/E of 11.20.

People’s United Financial, Inc. (PBCT) operates as the bank holding company for People’s United Bank that provides commercial banking, retail and small business banking, and wealth management services to individual, corporate, and municipal customers. The stock yields 4.50% and trades at a P/E of 58.60.

Plains All American Pipeline, L.P. (PAA), through its subsidiaries, engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products. The units of this master limited partnership yield 5.90% and trade at a P/E of 23.

PPL Corporation (PPL), through its subsidiaries, generates and markets electricity to approximately 4 million retail, commercial, and industrial customers in the northeastern and western United States and the United Kingdom. The stock yields 5.20% and trades at a P/E of 24.20.

Prosperity Bancshares, Inc. (PRSP) operates as the holding company for Prosperity Bank that provides retail and commercial banking services to small and medium-sized businesses and consumers. The stock yields 1.80% and trades at a P/E of 13.

South Jersey Industries, Inc. (SJI), through its subsidiaries, engages in the purchase, transmission, and sale of natural gas for residential, commercial, and industrial customers. The stock yields 2.70% and trades at a P/E of 24.40.

StanCorp Financial Group, Inc. (SFG), through its subsidiaries, provides group insurance products and services in the United States. The stock yields 2.10% and trades at a P/E of 9.

TC PipeLines, LP (TCLP), together with its subsidiaries, transports natural gas in the United States, eastern Canada, and Mexico. The units of this master limited partnership yield 6.70% and trades at a P/E of 17.20.

Telephone and Data Systems, Inc. (TDS), through its subsidiaries, provides wireless and wireline telecommunications services in the United States. The stock yields 1.30% and trades at a P/E of 21.10.

Before rushing to purchase those stocks however, investors should evaluate the sustainability of the distributions from each individual company first. In reality, few of the companies added to the index in 2010 would be part of it 20 years from now. When I examined the 1991 Dividend Achievers additions, I noticed an interesting trend. Of the 20 additions for 1991 only 2 remained in the index 19 years later. On average the expectation is that a company would keep raising distributions for ten years after being admitted in. Check the research and the findings here.
The new additions list is also heavy on utilities, energy companies and financials, with the exception of Altria (MO), Graco Inc. (GGG) and Casey’s General Stores, Inc. (CASY).

Full Disclosure: Long MO

Relevant Articles:

- Why do I like Dividend Achievers
- Dividend ETF or Dividend Stocks?
- Dividend ETF’s for busy investors
- 1991 Dividend Achievers additions- Where are they now?

Altria Delivers Another Smoking Hot Dividend Increase

Every week I check the list of companies that raise dividends. There are several reasons for that. The most of important reasons include checking whether companies I own keep raising distributions, as well as to identify companies which could be a potential addition to my portfolio at some point in time. The companies which announced increases in their dividend payments include:

Altria Group, Inc. (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. The company announced an 8.60% increase in its quarterly dividend to 38 cents/share. This was the second dividend increase this year. The company announced that the increase reflects the company's intention to return a large amount of cash to shareholders in the form of dividends, and is consistent with the company's dividend payout ratio target of approximately 80% of its adjusted diluted earnings per share. This is the 43rd consecutive dividend increase for Altria Group. The only reason why the company is not on the dividend aristocrat list is because its dividend payment is lower due to the spin-off of Phillip Morris International (PM) in 2008 and Kraft Foods (KFT) in 2007. The stock yields 6.70%. Check my analysis of the stock.

MGE Energy, Inc. (MGEE), through its subsidiaries, operates as a public utility holding company. It engages in generating, purchasing, transmitting, and distributing electricity. The company raised its quarterly dividend from $0.3684 to $0.3751 per share. The company has increased its dividend annually for the past 35 years and is part of the dividend achievers index. Yield: 4.10%

Bob Evans Farms, Inc. (BOBE), a full-service restaurant company, owns and operates Bob Evans Restaurants and Mimi’s Cafes in the United States. The company’s Board of Directors approved an 11.1% increase in the quarterly cash dividend from 18 cents/share to 20 cents/share. The company has consistently raised distributions since 2001. Yield: 3.10%

Westlake Chemical Corporation (WLK) manufactures and markets basic chemicals, vinyls, polymers, and fabricated products. It operates in two segments, Olefins and Vinyls. The company’s Board of Directors raised quarterly distributions by 10% to 6.35 cents/share. The company has consistently raised dividends every year since going public in 2004. Yield: 1%

G&K Services, Inc. (GKSR) provides branded identity apparel and facility services programs in North America. The company’s Board of Directors announced a 27% increase in its quarterly dividend to 9.5 cents/share. The company has raised distributions for five consecutive years.
Lorillard, Inc. (LO), through its subsidiaries, engages in the manufacture and sale of cigarettes in the United States. The company’s board of directors approved a 12.5% increase in the quarterly dividend on its common stock from $1.00 per share to $1.125 per share. This was the second consecutive dividend increase since the company began trading on NYSE in 2008. Yield: 6%

Todd Shipyards Corporation (TOD), a private shipyard operator, engages in the ship repair, construction, conversion, and maintenance work on commercial and federal government vessels that offers various maritime activities in the Pacific Northwest. The company’s Board of Directors declared an increase in its dividend of two and one-half cents per share, bringing its quarterly dividend to ten cents per share. While this is the second dividend increase this year, bringing the total dividend increase to 100%, the new dividend is still 33% lower than the distribution paid in 2008. The company has cut distributions in 2009. Yield: 2.70%

Stage Stores, Inc. (SSI) operates as a specialty department store retailer in the United States. The company’s Board of Directors raised the quarterly dividend by 50% to 7.5 cents/share. This was the first dividend increase since 2006. Yield: 2.70%

The companies, which seem worthy for further research include utility MGE Energy, Inc. (MGEE) and restaurant operator Bob Evans Farms, Inc. (BOBE). Both companies seem to have an adequately covered dividend, a price/earnings ratio that is below 20, a dividend yield that is higher than 2.50% and also have a history of raising dividends for 10 years or more. Westlake Chemical Corporation (WLK), G&K Services, Inc. (GKSR) and Lorillard, Inc. (LO) are a few years away from reaching a status of dividend achiever, which requires ten years of consecutive annual dividend increases. Nevertheless I would keep monitoring whether they keep rewarding shareholders with higher dividends.

Altria Group on the other hand also seems like an interesting play on tobacco. Some readers however might have something against the type of product the company is selling. In addition to that the high payout ratio is a little troubling, despite the assurance that management intends to share 80% of the profits with shareholders. Analysts do expect FY 2010 EPS to be $1.90 and then to increase to $2 by FY 2011. This means that future dividend increases will be more exposed to earnings fluctuations. As always, tread cautiously.

Full Disclosure: Long KFT, MO and PM

Relevant Articles

- Altria (MO) - a recession proof high yield dividend stock
- Six Notable Dividend Increases for the week
- Six Significant Dividend Increases
- Six Dividend Stocks for current income

Aflac (AFL) Dividend Stock Analysis

Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), provides supplemental health and life insurance. The company offers cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. This dividend aristocrat has raised dividends for 46 years in a row. The company most recently announced a 9.70% dividend increase to 34 cents/share.

Over the past decade, this dividend stock has delivered an annual total return of 8.10%.

At the same time the company has managed to increase earnings per share by 10.90% per year. In 2009, earnings per share increased by 21.70% to $3.19. Analysts are estimating FY 2010 and FY 2011 EPS to increase to $5.46 and $5.99 respectively. The company’s Japanese Operations, which contributed 75% of its revenues, are expected to post strong near term revenue increases due to distribution agreements with Japan Post. Introduction of new products should also add to increased revenues. The expectations for US revenues are for a slowdown in the near term due to challenging economic situation. The company’s investment portfolio is riskier than peers, as it includes bank hybrid bonds and sovereign debt issued by European companies and countries. The company’s strong cash position and ability to grow sales and earnings should be a stabilizing factor however, which could fuel future dividend growth.

Return on Equity has increased from 16% in 2000 to 20% in 2009. In addition to that this indicator has remained between 16 and 20 since 2004.

The annual dividend per share has increased by 23.30% annually over the past decade. A 23% increase in dividends translates into the dividend payment doubling every 3 years on average. Sicne 1984 the company has managed to double dividends every four years on average.

The dividend payout ratio has almost tripled over the past decade, from 13.50% in 2000 to 35% in 2009. This is a direct result of the fact that dividends have been increasing much faster than earnings over the past decade.

Currently Aflac trades at a P/E of 12.60, yields 2.50% and has an adequately covered dividend payment. I would be adding to my position on dips below $48.

Full Disclosure: Long AFL

Relevant Articles:

- Dividend Investing Works in All Markets
- A dividend portfolio for the long-term
- Three Dividend Strategies to pick from
- Financial Stocks for Dividend Investors

1991 Dividend Achievers additions- Where are they now?

The Dividend Achievers index includes companies that have increased annual dividends for at least 10 consecutive years and have met specific liquidity screening criteria. Companies that are included in the Dividend Achievers index typically generate strong cash flows, have solid balance sheets and a proven record of consistent earnings growth. These characteristics typically make these companies attractive takeover targets.

I was recently able to find the 1991 Dividend Achiever’s list. I checked the new additions for 1991 in order to investigate what happened to the companies after they have been added to the index. There were some limitations to the research, since companies changed their names, or were acquired, which made it difficult to track them down since current stock databases might not have freely available information on them. The companies which were added to the index in 1991 include:

First Empire State Corp later changed its name to M&T Bank (MTB). M&T Bank Corporation operates as the holding company for M&T Bank and M&T Bank, National Association that provide commercial and retail banking services to individuals, corporations and other businesses, and institutions. The company stopped raising dividends in 2008 and was deleted from the index in 2009. The yield on cost today of a December 1990 investment in the stock would be 51.10%. One dollar invested in 1991 would be worth 13.30 dollars today. (analysis)

American General (AGC), which was acquired by American International Group (AIG) in 2001. The company had increased dividends up until the merger was finalized.

Rouse Co (ROUS) was acquired by General Growth Properties in 2004. The company had increased dividends up until the merger was finalized.

Bank South Corp (BKSO) was acquired by Bank of America (BAC) in 1996. The company suspended its dividends July 1991, after suffering from large losses. The dividend was reinstated in 1993.

Pall Corporation (PLL) manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. Pall Corp (PLL) stopped raising dividends in 2002 and then cut distributions by almost 50%. The yield on cost today of an early 1991 investment in the stock would be 4%. One dollar invested in December 1990 would be worth 3.29 dollars today.

State Street Corporation (STT), through its subsidiaries, provides various products and services for the institutional investors worldwide. The company cut its dividend payment in 2009 to 1 cent/share, from 24 cents/share. The yield on cost had reached 24.70% by 2008; after the cut it went down to 1%. One dollar invested in December 1990 would be worth 12.68 dollars today. (analysis)

Crawford & Company (CRD-B) provides claims management solutions to insurance companies and self-insured entities worldwide. The company cut dividends in 2002 and eliminated the dividend payment in 2006. One dollar invested in December 1990 would be worth 64.40 cents today.

Wrigley Wm Jr (WWY) was acquired in 2008. The company had increased dividends up until the merger was finalized. Berkshire Hathaway (BRK.B) provided financing for the acquition.

Black Hills Corporation (BKH), together with its subsidiaries, operates as a diversified energy company. It operates through two groups, Utilities and Non-regulated Energy. The company is still a member of the dividend achievers index. The yield on cost today of a December 1990 investment in the stock would be 17.10%. One dollar invested in December 1990 would be worth 10.92 dollars today.

Central Fidelity Banks (CFBS) was acquired by Wachovia (WB) in 1997. The company had increased dividends up until the merger was finalized.

American Precision Industries (APR) was acquired by Danaher (DHR) in 2001. The company was deleted from the index in 1997 after it failed to increase dividends.

The Laclede Group, Inc. (LG) operates as a public utility holding company providing natural gas service to approximately 630,000 users in St. Louis. The company failed to increase its dividend in 1992, just one year after being admitted in the index. The yield on cost today of a December 1990 investment in the stock would be 10.50%. One dollar invested in December 1990 would be worth 6.48 dollars today.

KeyCorp (KEY) operates as a holding company for KeyBank National Association that provides various banking services in the United States. The company cut dividends in 2008, amidst the worst financial crisis since the Great Depression. The yield on cost had reached 27.10% by 2008; after the cut it went down to 0.70%. One dollar invested in December 1990 would be worth 3.32 dollars today.

Boatmen’s Bancshares (BOAT) was acquired in 1996 by Bank of America (BAC). The company had increased dividends up to the merger was finalized.

St. Joseph Light & Power (SAJ) was acquired by Utilicorp (UCU) in 1999. The company had increased dividends up to the merger was finalized.

CLARCOR Inc. (CLC) provides filtration products and services to customers worldwide. It operates in three segments, including Engine/Mobile Filtration, Industrial/Environmental Filtration, and Packaging. The yield on cost today of a December 1990 investment in the stock would be 10.80%. One dollar invested in December 1990 would be worth 15.70 dollars today.

OGE Energy Corp.(OGE) , together with its subsidiaries, operates as an energy and energy services provider offering physical delivery and related services for electricity and natural gas primarily in the south central United States. The company failed to increase distributions in 1992, just one year after being admitted in the dividend achievers index. The Oklahoma Gas & Electric utility didn’t start raising dividends again until 2007. The yield on cost today of a December 1990 investment in the stock would be 13.50%. One dollar invested in December 1990 would be worth 15.00 dollars today.

Source Capital, Inc. (SOR) is a close-ended equity fund launched and managed by First Pacific Advisors, LLC. The fund invests in the public equity markets of the United States. The yield on cost today of a December 1990 investment in the stock would be 6.60%. One dollar invested in December 1990 would be worth 6.50 dollars today. The company failed to increase dividends in 1991.

IE Industries was acquired in 1997 by WPL. The company had increased dividends up until the merger was finalized.

Colonial Gas was acquired in 1999. The company had increased dividends up until the merger was finalized.

The results of the 1991 additions are really stunning. Out of 20 companies that were added to the dividend achievers index only 2 are still its members - CLARCOR Inc. (CLC) and Black Hills Corporation (BKH). However, half of those additions became takeover targets. Of those ten acquired companies, only two stopped paying distributions before they were acquired. Five companies eventually cut distributions – State Street (STT), Key Corp (KEY), Source Capital, Inc. (SOR), Crawford & Company (CRD-B) and Pall Corporation (PLL). The remaining companies either maintained distributions or raised them sporadically over the next 19 years. Stay tuned for my article next week, when I will discuss how to profitably exploit the findings of this research.

Full Disclosure: Long MTB
Relevant Articles:

- Dividend growth stocks are attractive buyout targets
- Where are the original Dividend Aristocrats now?
- Buy and hold dividend investing is not dead
- Strong Brands Grow Dividends