Company Description: Medtronic Inc.is a global medical device manufacturer has leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

MDT is trading at a discount to 1.) and 3.) above. The stock is trading at a slight premium to its calculated fair value of $37.99. MDT did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

MDT earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1977 and has increased its dividend payments for 33 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

MDT earned a Star in this section for its NPV MMA Diff. of the $549. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as MDT has. If MDT grows its dividend at 9.4% per year, it will take 7 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: MDT is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company’s peer group includes: Becton, Dickinson and Company (BDX) with a 2.1% yield, Baxter International Inc. (BAX) with a 2.4% yield and CR Bard Inc. (BCR) with a 0.7% yield.

Conclusion: MDT did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks MDT as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $40.23 before MDT’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 33 years of consecutive dividend increases. At that price the stock would yield 2.24%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 9.2%. This dividend growth rate is slightly below the 9.2% used in this analysis, thus providing a small margin of safety. MDT has a risk rating of 1.00 which classifies it as a Low risk stock.

MDT owns a diversified portfolio with a strategy to develop products for a wide range of chronic diseases. Although it is exposed to the highly competitive areas of the medical equipment markets, MDT enjoys many competitive advantages including scale (operations and sales), product breadth and financial strength. The stock was a 5-Star buy back in September 2010 when it was last reviewed. It was trading in the low to med-30′s at that time. Since then, the price has seen a steady increase to where it is now trading at a slight premium to my fair value price of $37.99. I will continue to buy in moderation on dips and as my allocation allows. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in MDT (3.8% of my Income Portfolio). See a list of all my income holdings here.

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Linked here is a detailed quantitative analysis of Medtronic Inc. (MDT). Below are some highlights from the above linked analysis:

Company Description: Medtronic Inc. is a global medical device manufacturer has leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management and other medical markets.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

MDT is trading at a discount to 1.) and 3.) above. The stock is trading at a 16.1% discount to its calculated fair value of $38.78. MDT earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

MDT earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. MDT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1977 and has increased its dividend payments for 33 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

MDT earned a Star in this section for its NPV MMA Diff. of the $1,106. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as this company. If MDT grows its dividend at 9.4% per year, it will take 4 years to equal a MMA yielding an estimated 20-year average rate of 3.71%. MDT earned a check for the Key Metric ‘Years to >MMA’ since its 4 years is less than the 5 year target.

Memberships and Competitors: MDT is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. MDT’s peer group includes: Bard C.R. (BCR) with a 0.9% yield, Baxter International (BAX) with a 2.6% yield and Becton Dickinson (BDX) with a 2.1% yield.

Conclusion: MDT earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks MDT as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $41.65 before MDT’s NPV MMA Differential increased to the $500 minimum that I look for in a stock with 33 years of consecutive dividend increases. At that price the stock would yield 2.16%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 7.0%. This dividend growth rate is well below the 9.4% used in this analysis, thus providing a margin of safety. MDT has a risk rating of 1.25 which classifies it as a low risk stock.

MDT owns a diversified portfolio with a strategy to develop products for a wide range of chronic diseases. Although it is exposed to the highly competitive areas of the medical equipment markets, MDT enjoys many competitive advantages including scale (operations and sales), product breadth and financial strength, with a free cash flow payout of 28% and debt to total capital of 39%. The company is well-positioned for future development in disease management. MDT is currently trading more than 15% below my fair value price of $38.78. This company has a lot of promise, as such, I will continue to evaluate it for a place in my portfolio. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in MDT (0.0% of my Income Portfolio). See a list of all my income holdings here.

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To identify these stingy companies, I used the following criteria on the companies I track:

• A Free Cash Flow Dividend Payout (FCFp) of 40% or less. This means that 60% of the company’s cash, after operating expenses, is going elsewhere.
• A sum of Debt to Total Capital (Debt) + FCFp of less than 50%. This should help weed out the companies holding the cash to pay interest.
• Trailing 12-month Free Cash Flow per share is greater than an average of the last 3 years. This weeds out companies where cash flow is decreasing.
• Cash on the balance sheet in excess of short-term debt. This weeds out companies that may have an immediate debt-servicing need for the cash.

Here are seven stocks out of the 100 that I track meeting the above criteria:

Aflac Incorporated (AFL) – 4-Stars – Analysis
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.

• FCF Payout: 10%
• Debt + FCFp: 34%
• Cash/ST Debt: 11.5 Times

C.R. Bard Inc. (BCR) – 4-Stars
Bard (C.R.) Inc is a diversified producer of therapeutic and diagnostic medical devices has exposure to the vascular, urology, oncology, and specialty surgical markets.

• FCF Payout: 13%
• Debt + FCFp: 19%
• Cash/ST Debt: No ST Debt (4.1 Times LT Debt)

Franklin Resources Inc. (BEN) – 2 Stars
Franklin Resources Inc. is one of the world’s largest asset managers, serving retail, institutional and high-net-worth clients.

• FCF Payout: 17%
• Debt + FCFp: 31%
• Cash/ST Debt: 91.2 Times

Donaldson Company (DCI) – 3 Stars – Analysis
Donaldson Company operates as a worldwide manufacturer of filtration systems and replacement parts.

• FCF Payout: 17%
• Debt + FCFp: 49%
• Cash/ST Debt: 1.6 Times

General Dynamics (GD) – 2 Stars – Analysis
General Dynamics is the world’s sixth largest military contractor and also one of the world’s biggest makers of corporate jets.

• FCF Payout: 25%
• Debt + FCFp: 48%
• Cash/ST Debt: 1.2 Times

Lancaster Colony (LANC) – 2 Stars
Lancaster Colony is a diversified Ohio-based company manufactures and markets consumer products; glassware and candles; and automotive accessories.

• FCF Payout: 25%
• Debt + FCFp: 29%
• Cash/ST Debt: No ST Debt (1.3 Times LT Debt)

Walgreen Co. (WAG) – 3 Stars – Analysis
Walgreen Co is the largest U.S. retail drug chain in terms of revenues. It sells prescription and non-prescription drugs, beauty care, personal care, household items, candy, photofinishing, greeting cards, seasonal items and convenience foods.

• FCF Payout: 28%
• Debt + FCFp: 42%
• Cash/ST Debt: 230 Times

You could view this from a positive perspective and say the above dividends should be very safe and the companies are in an excellent position to continue to raising them each year.  In dividend investing, cash is king, but at some point management has to be willing to share it with the company’s owners.

Full Disclosure: Long AFL. See a list of all my income holdings here.

On June 5th, WMT announced a new share repurchase program that gives the company authorization to repurchase $15 billion of its shares. The new plan replaces the previous $15 billion program, which was announced June 1, 2007 and had approximately $3.4 billion of remaining authorization.

CEO Mike Duke said, “We remain committed to returning value to our shareholders through share repurchase and dividends.” In the last five years Wal-Mart has repurchased approximately $21 billion worth of its shares, Duke said. In addition, WMT raised its dividend in 2009 by 15% to $1.09/share.

Below are some companies rewarding their shareholders with increasing cash dividends:

• VSE Corporation (VSEC) increased its dividend to $0.20/share annually, yielding 0.76%
• Oil-Dri Corporation (ODC) raised its dividend 7% to $0.15/share, yielding 3.00%
• Florida Public Utilities (FPU) bumped its quarterly dividend 2.1% to $0.12/share, yielding 3.71%
• C. R. Bard (BCR) boosted its quarterly dividend 6% to $0.17/share, yielding 0.93%
• Clorox (CLX) increased its  dividend 8.7% to $0.50/share, yielding 3.73% – Analysis
• Target (TGT) raised its quarterly dividend 6% to $0.17/share, yielding 1.72%
• National Fuel Gas (NFG) bumped its quarterly dividend by 3.1% to $0.335/share, yielding 3.76%

One sign of confident and competent management is willingness and ability to raise their company’s dividend during a severe economic downturn. For companies with a long string of consecutive dividend increases, see this list.

Full Disclosure: Long WMT, CLX.  See a list of all my income holdings here.

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