Medtronic still hiding behind its status as a dividend aristocrat

Published: 2025-05-22 04:24:52 ET MDT

Published on 05/22/2025 at 04:24

By Kevin Smith

The world leader in medical equipment is a master in the art of making announcements; in the absence of objective economic performance, it certainly knows how to appease its shareholders.

The last cycle has been difficult, marked by sluggish growth and poor returns on significant investments in acquisitions, as well as the clear ineffectiveness of even larger amounts allocated to share buybacks.

These issues were already discussed in our columns in 2023 and 2024. See Medtronic plc: Still struggling to convince and Medtronic plc: hiding-behind-its-status-as-dividend-aristocrat.

FY 2025, which is coming to a close, marks a significant improvement, although no real change in operations, with margins and sales growth in line with the trends observed over the past ten years. The jump in net income is mainly due to a very substantial reduction in restructuring costs.

Out of the group's three main segments—cardiovascular, neuroscience, and surgery—the latter continues to struggle, with no growth in markets where Medtronic has missed the boat and is struggling to catch up. The fourth operating segment—diabetes, which accounts for only 8% of consolidated revenue—will be spun off within the next 18 months.

At $5.2bn, free cash flow is broadly in line with last year's figure. As wrote at the time, Medtronic is largely hiding behind its status as a dividend aristocrat by playing up a powerful announcement: an increase in its dividend per share for the 48th consecutive year.

However, it should be noted that on a consolidated basis, dividend payments are declining; if they are increasing per share, it is due to massive share buybacks. And that dividends and share buybacks together cost the group $6.3bn, or $1.1bn more than the free cash flow generated this year.

Unsurprisingly, net debt has increased by $1.5bn. The sustainability of such management is questionable, which the market seems to have already acknowledged, as it continues to value Medtronic at multiples close to their ten-year lows.

Medtronic is the second struggling dividend aristocrat discussed this week after Stanley Black & Decker.

Kevin Smith