Good news for St. Jude Medical’s (STJ) investors as its Board has approved the commencement of a regular quarterly cash dividend. The move is based on the company’s growth prospects, product pipeline, solid balance sheet, healthy free cash flows and earnings power.
The Minnesota-based medical devices major will pay the initial quarterly dividend of 21 cents a share on Apr 29, 2011, to shareholders of record as on Mar 31, 2011. Annualized, this equates to a payout of 84 cents, translating into a dividend yield of roughly 1.75% based on the closing price on February 28.
St. Jude is confident that it has reached a scale where it can return value to investors in the form of dividends while continuing to invest in growth programs along with share repurchases and acquisitions.
The initiation of dividend follows the incremental payouts by other medical devices giants such as Medtronic (MDT) and Stryker Corp (SYK). Both Medtronic and Stryker bumped their quarterly dividends (by 9% and 20%, respectively) in 2010.
St. Jude posted better-than-expected fourth-quarter fiscal 2010 results in a still challenging operating backdrop with revenues and earnings beating the Zacks Consensus Estimates, backed by strong contributions from the company’s implantablecardioverter defibrillator (“ICD”) business.
We remain intrigued by St. Jude’s ability to deliver consistent revenue and earnings growth. Moving forward, revenue growth should be fueled by numerous product introductions. In its fourth quarter call, the company has divulged a number of growth initiatives for fiscal 2011 which are expected to boost the top line.
St. Jude is well positioned to savor incremental opportunities in CRM (especially ICDs) on the back of strong product pipeline. Several new product launches across the U.S. and Europe should boost the company’s CRM market share in 2011. Moreover, the acquisition of AGA Medical Holdings has considerably strengthened St. Jude’s cardiovascular business.
While we are impressed by St. Jude’s solid fundamentals, strong product mix, healthy growth trajectory and operating leverage, we remain wary about competition-driven pricing pressure and the dilutive impact of acquisitions and any unfavorable currency exchange fluctuations on the bottom line. This is reflected in our Neutral recommendation for the stock, backed by a Zacks #3 Rank (Hold).
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