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Written by Reuben Gregg Brewer for The Motley Fool->
Medtronic is a large and diversified medical device company that is currently deeply out of favor on Wall Street.
The company is working to improve its profitability and growth profile, with important new products starting to hit the market.
Shares of Medtronic (NYSE: MDT) are down 40% from their 2021 high. The dividend yield is a historically high 3.6%. Although this medical device maker is deeply unloved, now could be a good time for savvy investors to start adding it to their portfolios. Here's why.
Medtronic is facing headwinds. Growth and profitability have both been weak spots. But management is attempting to improve its business performance.
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On the profitability side, the medical device maker has been readjusting its product portfolio to focus on its highest margin businesses. Included in that process is the spin-off of the company's diabetes division as MiniMed (NASDAQ: MMED). That division was growing quickly, but it had lower margins, so the spin-off is expected to improve Medtronic's margins and be immediately accretive to Medtronic's earnings.
On the growth side, the company has several new products it is bringing to market after a dry spell. The most notable is the company's Hugo surgical robot. Intuitive Surgical (NASDAQ: ISRG) has benefited for years from strong demand for its da Vinci surgical robot. There's good reason to believe Hugo will be well received, too, given Medtronic's deep customer relationships in the healthcare sector. The company has also been acquiring smaller companies with interesting technology, in an effort to further bolster its product pipeline for the future.
Basically, Medtronic is putting the puzzle pieces together to get back on a stronger footing. When that happens, Wall Street is likely to reward the stock with a higher valuation. While you wait for that to happen, you can collect the stock's well-above-market yield. But there's more to the dividend story than just the yield.
Medtronic's dividend has been increased annually for 48 consecutive years. While the last few dividend increases have been little more than token hikes, the streak is still intact. And the company is just two years away from hitting Dividend King status. A company can't increase its dividend for this long without successfully working through difficult periods. This is just one of the hard times. If history is any guide, Medtronic will get through this and back on a better track.
There's no way to know exactly when Wall Street starts to see Medtronic in a better light. However, if you buy the stock now, you will be there when the business trends turn positive again. And, when that does happen, you'll likely see a return to faster dividend growth, as well. This is why savvy long-term investors should consider buying Medtronic now, while the stock is still beaten down.
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Reuben Gregg Brewer has positions in Medtronic. The Motley Fool has positions in and recommends Intuitive Surgical and Medtronic. The Motley Fool recommends the following options: long January 2028 $520 calls on Intuitive Surgical and short January 2028 $530 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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