This Dividend Stock Just Hit a Major Milestone. Time to Buy?

Rebecca French

5 months ago

Medtronic has received regulatory approval for its Hugo robotic-assisted surgical system in the United States.
It will take some time for the device to have a significant impact on the company’s financial performance.
Still, Medtronic has a strong business, multiple growth opportunities, and an excellent dividend plan.
10 stocks we like better than Medtronic ›

Medtronic (NYSE: MDT)Medical device specialist companies have performed well this year. Despite the threat of tariffs, this had a significant impact on its earnings. However, despite this headwind, its financial performance remains strong and its outlook for next year remains bright.

Things got even better recently when Medtronic received U.S. regulatory approval for a device that could become a significant growth driver for the healthcare giant. Let’s dig a little deeper and determine whether these developments make Medtronic an attractive investment stock.

Surgeon in the operating room. — Image source: Getty Images.

Medtronic began developing the Hugo system, a robot-assisted surgery (RAS) device, more than a decade ago. The company sees a significant underpenetrated opportunity in the RAS market, as adoption of these machines is insufficient to meet the volume of surgeries eligible for robotic assistance.

As management observed in 2023, despite the benefits of RAS, less than 5% of surgeries that can be performed robotically will be done so. Robotic devices help perform minimally invasive surgeries. They use tiny instruments that are inserted into the patient through small incisions. Unlike open surgeries, they do not require large incisions to gain direct access to organs.

The Hugo system has been used in several countries for years but has not yet been licensed in the United States, its most lucrative market. Things have changed now. Medtronic recently announced that the Hugo system has been approved for use in urological procedures in the United States. What does this mean for Medtronic’s financial results?

The Hugo system will have to face intuitive surgeryThe DaVinci System embodies this. It’s worth pointing out that as of last year, urology was the da Vinci System’s third-largest specialty in the United States and its largest outside the United States. Therefore, this market accounts for a significant proportion of Intuitive Surgical’s da Vinci system revenue and is by far its most important growth driver. What does this mean for Medtronic?

The company must convince medical institutions to choose Hugo over the more established (and more thoroughly studied in real-world procedures) da Vinci system. Medtronic’s new device will also take time to ramp up surgical volume.

But assuming 10% of Intuitive Surgical’s $8.35 billion comes from urology procedures, and giving Medtronic a 10% share of that ($835 million), the proceeds would have little impact on the company’s trailing 12-month revenue of $34.76 billion. Likewise, it will take some time for Medtronic to reach 10% market share. In other words, Hugo Systems’ approval shouldn’t have much material impact on its financial results next year.

However, that doesn’t mean the milestone is meaningless. Here are three reasons why.

First, Medtronic will pursue indications outside of urology. It has tested the device in hernia repairs. New indications are a key driver of Intuitive Surgical’s surgical volume growth. Ultimately, the same story applies to Medtronic’s Hugo system.

Second, as already mentioned, the RAS market is severely underpenetrated. Increasing adoption of this technology will help grow the installed base of Medtronic’s Hugo system. Over time, the company should generate steady revenue from the device, especially as procedure volume increases.

Third, the aging of the world’s population should provide more growth momentum for the healthcare industry and niche markets within that industry, as well as for Medtronic.

But does all this make Medtronic stock a buy? The company’s strong financial performance, growth momentum beyond its RAS ambitions, and excellent dividend program make it attractive to patient long-term income seekers.

Medtronic has increased its dividend for 48 consecutive years. In a few years, it will become a Dividend King – a company that has provided shareholders with dividend growth for at least 50 consecutive years. It should continue to increase its dividend every year for many years to come. Despite the tariff issues, I think the stock is a buy.

Before buying Medtronic stock, consider the following factors:

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