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Stryker Provides a Long-Standing Dividend Story

A 20-year dividend history appears steady into the future

   

Stryker (NYSE:SYK), together with its subsidiaries, operates as a medical technology company. The company operates in three segments: Reconstructive, MedSurg, and Neurotechnology and Spine. The company is a member of the dividend achievers index, and has been able to boost distributions for 20 years in a row.

The company’s last dividend increase was in December 2012 when the Board of Directors approved a 24.70% increase to 26.50 cents per share. The company’s peer group includes Johnson & Johnson (NYSE:JNJ), Zimmer Holdings (NYSE:ZMH) and Smith & Nephew (NYSE:SNN).

Over the past decade this dividend growth stock has delivered an annualized total return of 6% to its shareholders.

syk2012 Stryker Provides a Long Standing Dividend Story

The company has managed to deliver an 11% average increase in annual EPS since 2002. Analysts expect SYK to earn $4.04 per share in 2012 and $4.30 per share in 2013. In comparison, the company earned $3.45 per share in 2011.

EPS Stryker Provides a Long Standing Dividend Story

The medical device sales tax that will be introduced in 2013 might reduce near term earnings. Softer hospital budgets might also be unfavorable to earnings growth. The market for U.S. reconstructive sales is expected to recover, thus boosting Stryker’s revenues, and hopefully offsetting any softness from Europe. The company’s future growth could come from acquisitions as well as new product launches. It spends 17% per year in R&D expenses per year in an effort to maintain market share in an increasingly competitive marketplace.

The return on equity has decreased from 27% in 2002 to 18% by 2012. I generally want to see at least a stable return on equity over time.

ROE Stryker Provides a Long Standing Dividend Story

The annual dividend payment has increased by 33.50% per year over the past decade, which is higher than the growth in EPS.

DPS Stryker Provides a Long Standing Dividend Story

A 33% growth in distributions translates into the dividend payment doubling every two years on average. If we look at historical data, going as far back as 1993, one would notice that the company has actually managed to double distributions every three years on average.

The dividend payout ratio has increased from 6% in 2002 to 21% in 2011. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

DPR Stryker Provides a Long Standing Dividend Story

Currently Stryker is attractively valued at 14.70 times earnings and has a sustainable distribution. However, given the low yield of 2%, I would consider initiating a position in the stock on dips below $43.

Full Disclosure: Long JNJ


Article printed from InvestorPlace Media, http://investorplace.com/2013/01/stryker-provides-a-long-standing-dividend-history-syk-jnj-snn-zhm/.

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