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What are we looking for?

Medical-industry stocks offering dividend sustainability regardless of which drugmaker wins the race for a COVID-19 vaccine.

The screen

Back-to-back announcements last week by Moderna Inc. and Pfizer Inc. about Phase 3 testing for competing COVID-19 vaccines highlight the emerging race among leading drug makers. But, regardless of who crosses the line first, the easing of pandemic restrictions has already begun and should spur demand for medical devices as clinics, doctor’s offices and hospitals resume regular procedures.

We’re looking for medical-device makers benefiting from that reopening in the short term but also tapped into long-term trends such as an aging population and another growth spurt for the world’s middle class.

From a list of industry leaders, we applied our TSI Dividend Sustainability Rating System to those offering that investor income. Our system awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments and two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign-currency exchange rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated five stocks. Medtronic PLC is the world’s largest medical device provider, based on revenue. Stryker Corp.‘s wide range of products directly taps demand driven by aging baby boomers. COVID-19 is just the latest driver of sales for Steris Corp.’s sterilization products. ResMed Inc. has achieved recent highs on strong demand for its CPAP (nasal continuous positive airway pressure) devices, which treat patients with sleep apnea. U.K.-based Smith & Nephew PLC is a leading maker of hip and knee replacement joints.

We advise investors to do additional research on any investments we identify here.

U.S. medical device manufacturer stocks

Ranking*CompanyTickerShare price ($ USD)1-Year Total Return % Market cap ($B USD) Div. Yield %PointsDividend Sustainability Rating
1Medtronic PLCMDT-N96.78-2.5129.22.411Highest
2Stryker Corp.SYK-N192.13-8.671.01.211Highest
3Steris PLCSTE-N157.679.013.40.911Highest
4ResMed Inc.RMD-N193.5359.929.30.810Highest
5Smith & Nephew PLCSNN-N40.91-8.417.62.39Above Average
* Ranking is determined by TSI Dividend Sustainability Score.

Source: Dividend Advisor 

James Bates is a senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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