Major orthopedic device manufacturer, Stryker Corp. (SYK), recently hiked its quarterly dividend by 13% to 34.5 cents per share from 30.5 cents. This lifts the annual dividend to $1.38 per share from the current $1.22 and translates into a dividend yield of approximately 1.5%.
The raised quarterly dividend is payable on Jan 30, 2014, to shareholders of record as of Dec 31, 2014. Stryker’s previous dividend increase was made in Dec 2013, when it raised the quarterly payout by 15% to 30.5 cents a share from 26.5 cents.
However, the news failed to cheer investors as Stryker’s share price declined a nominal 0.2% to close at $94.51 on Dec 3, 2014.
Stryker’s peers St. Jude Medical (STJ) and Medtronic (MDT) also pay regular dividends to its shareholders. Medtronic raised its quarterly dividend by 9% to 30.5 cents in June, while St. Jude hiked its dividend payout by 8% to 27 cents in Feb 2014. Currently, both Medtronic’s and St. Jude’s dividend yield of 1.7% and 1.6%, respectively, compare favorably with that of Stryker’s.
Nevertheless, we believe that the dividend increase underscores Stryker’s commitment to deliver incremental returns to investors leveraging a solid balance sheet, healthy free cash flow and earnings. Stryker exited the third quarter of 2014 with cash and cash equivalents of $1.36 billion, higher than $1.34 billion as of Dec 31, 2013.
Stryker has been consistently driving earnings over the past several quarters, which has in a way led to the dividend hike. In the third quarter of 2014, the company reported adjusted earnings of $1.15 per share, which grew nearly 10.6% year over year and surpassed the Zacks Consensus Estimate by a penny.
Aggressive share repurchases will also boost earnings as well as shareholders’ value in the near term. Notably, Stryker has over $500 million remaining under its current share repurchase program as of Sep 30, 2014.
We believe that Stryker’s acquisition-driven strategy will enhance its long-term growth prospects by expanding its existing product offerings across all business segments. However, it faces intense competition in the orthopedics industry from the likes of Zimmer Holdings, Johnson & Johnson (JNJ), Smith & Nephew and Biomet. The mergers between Medtronic and Covidien as well as Zimmer Holdings and Biomet will further intensify competition.
Stryker currently carries a Zacks Rank #3 (Hold).
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