Prediction: Buying Medtronic Today Will Set You Up for Life

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Reuben Gregg Brewer, The Motley Fool

Fri, Mar 28, 2025, 7:15 AM 4 min read

Healthcare can be a complex sector, and it is one that I long ago decided to outsource to the industry professionals who run closed-end fund Blackrock Health Sciences Trust. But I couldn't resist dipping my toe into the sector when I saw the historically high yield on offer from Medtronic (NYSE: MDT), one of the largest and most diversified medical device makers.

Here's why this is the one healthcare stock I own and why I think it will help set me up for life -- and may do the same for you too if you buy it.

I'm a die-hard dividend investor

One of the signs of dividend greatness is a company that has increased its dividend year in and year out for decades. That can only be accomplished if a company has a strong business model that gets executed well in both good times and bad. That said, even great companies go through bad times, which is when I most like to buy them. My preferred tool for finding companies that have fallen on hard times is looking for stocks with historically high dividend yields.

A person writing the word dividends. — Image source: Getty Images.

Medtronic has increased its dividend annually for 47 consecutive years, the third-longest streak in the healthcare sector. Its nearly 3.1% dividend yield is near the high end of the company's historical yield range. I'm not going to claim to be an expert on the healthcare sector, but I am confident that my investment in Medtronic is going to set me up for life, or at least for a lifetime of reliable income.

Medtronic is an industry leader

One of the big reasons why I avoid most healthcare stocks is that the pace of innovation is swift, and I just don't have the expertise (or the time) to keep up with the sector's ongoing evolution. But Medtronic isn't a tiny upstart; it is a medical device Goliath with leading positions in cardiac care, neuroscience, surgery, and diabetes management. It is most certainly doing cutting-edge research, but it is also large enough to act as an industry consolidator.

That means I don't need to worry about change. Medtronic is on top of it and ensuring that it remains at the cutting edge, even if that means buying its way into new technologies.

So, why is the stock unloved? The answer is that its portfolio had become bloated and its business a bit unwieldy. That happens over time, particularly if acquisitions are a key part of a company's business model. The solution in almost every case is to restructure the business, sell non-core assets, and work on increasing efficiencies. This is what Medtronic is doing. It has been a slow process, but it is starting to show results.

For example, in the fiscal third quarter of 2025, organic sales rose 4.1%, and thanks to improvements in both the gross margin and the operating margin, adjusted earnings advanced 6.9%. It looks increasingly like Medtronic's business overhaul is starting to gain traction. To be fair, the $115 billion market cap company isn't likely to suddenly become a growth stock. Slow and steady is what I'm expecting, but that should be more than enough to keep dividend growth going for years to come.

There's more than just dividend growth potential here

Medtronic's stock has lost around a third of its value since late 2022. However, stock prices for longtime dividend growers tend to track their dividends higher over time. That connection appears to be broken at the moment with Medtronic. I expect it to return as the company proves that its business is back on track.

I'm being paid well to wait for that to happen by the lofty yield and long-term dividend growth potential. But I also like the opportunity to see a near-term stock price recovery and a return to the long-term trend of the price rising along with the dividend over time. Put the two together, and I think I've set myself up for a lifetime of dividends and attractive capital gains.

You might be able to do the same if you buy Medtronic while it is still deeply unloved on Wall Street.

Should you invest $1,000 in Medtronic right now?

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Reuben Gregg Brewer has positions in BlackRock Health Sciences Trust and Medtronic. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.

Prediction: Buying Medtronic Today Will Set You Up for Life was originally published by The Motley Fool

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