Arrow-right Camera
The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Motley Fool: Dividends from devices

A worker observes pig heart membrane that will be used in the production of human heart valve replacements, at the Medtronic assembly plant in October 2014 in Tijuana, Mexico.  (David Maung/Bloomberg)
Motley Fool

Medtronic (NYSE: MDT) is a health care giant with a recent market value of $110 billion.

It offers many medical devices, such as implantable pacemakers, aortic valves, mesh implants, stapling devices and technology used in robot-assisted surgeries. Medtronic’s dividend recently sported a yield of 3.3%, and it has upped its payout for 47 consecutive years.

The company’s business is growing, too, with third-quarter revenue increasing by 4.7% year over year and earnings per share (EPS) advancing by 8%. Growth is likely to continue, as Medtronic spent $2.7 billion on research and development in its fiscal year 2023, and recently had more than 200 clinical trials in progress. One recent innovation is Medtronic’s GI Genius, an intelligent endoscopy system, using artificial intelligence to help detect colorectal polyps.

With ongoing advancements and an expanding health care industry, there’s room for Medtronic’s growth rate to be higher than it has been the past few years. Meanwhile, the company is shedding less-profitable operations, such as its line of ventilators.

Its stock looks attractively priced at recent levels, with a recent forward-looking price-to-earnings (P/E) ratio of 15, well below its five-year average of 18. (The Motley Fool has recommended Medtronic stock and options.)

Ask the Fool

Q. Do I lose all my money if one of my holdings goes bankrupt? – L.G., Keene, New Hampshire

A. Typically, yes. If and when a company emerges from bankruptcy, that can be great for the company – but common-stock shareholders often get little or nothing.

They’re last in line to collect, following creditors (banks, bondholders, suppliers, etc.) and holders of preferred stock, among others.

Also, the original shares of companies emerging from bankruptcy will often be canceled and replaced, leaving original shareholders with worthless shares.

It’s true that many companies file for bankruptcy protection, fix some big problems and emerge in better shape, as Marvel Entertainment and Delta Air Lines did.

But others, such as Blockbuster and Enron, never recover.

They may still be worth something if they’re able to sell their name or other assets, or if they’re acquired by another company, but common-stock shareholders rarely benefit from that.

The best way to avoid being surprised by a bankruptcy filing is to read reports from the companies in which you’re invested and follow their progress.

Q. If I’m investing in stocks via direct stock purchase plans (DSPPs) and dividend reinvestment plans (“DRIPs”), do I need to keep records of transactions? – C.L., Columbia, Missouri

A. You sure do.

Those plans let you bypass brokerages and invest in companies directly, often with small sums and often with the ability to have dividends reinvested in additional shares (or partial shares) of stock.

But for tax purposes, it’s important to keep good records of your purchases, sales and reinvested dividends.

You can learn more about dividend investing in “The Little Book of Big Dividends: A Safe Formula for Guaranteed Returns” by Charles B. Carlson (Wiley, $28).

My Dumbest Investment

My most regrettable investment was letting my peers and mentors dissuade me from actively investing.

I was in high school when my math teacher used dividend stocks to demonstrate the idea of compounding interest.

When I turned 18, the other adults in my life told me that dividend yields are too small to live off of. It was almost 20 years later before I started composing a dividend growth portfolio.

It looked like a great idea at age 18, and it still looks like a great idea at age 40. – J.D., online

The Fool responds: You’re smart to focus on dividends that have been growing briskly.

And sure, some dividends are small and slow-growing, but others may be large – and, ideally, fast-growing.

Starbucks, for example, recently yielded a solid 3% – and its payout has averaged 10% growth over the past five years.

Imagine that you buy 100 shares of a stock for $100 per share (total outlay: $10,000) and that it has a $3 annual dividend (paying you $300 per year). If that dividend grows by 10%, on average, each year, it will become a $12.53 dividend in 15 years, delivering $1,253 for that year. Dividend investing can be powerful.