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Keeping an eye on Medtronic

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July 27, 2011 – Comments (3) | RELATED TICKERS: MDT

Back in early June I did a rundown of expected returns for Medtronic's stock. The outcome of my mid-case scenario was 9.7% per year -- not terrible, but not great and less than what I typically look for when I'm adding to my portfolio. 

Fast forward to today. Since June 6, Medtronic's stock has fallen and it's raised its dividend by 8%. Without changing anything else in my model, that brings Medtronic's mid-case up to 12%/year -- a much better buying opportunity.

I'm focusing on MDT here, but this applies to pretty much any stock. If you like the underlying business but aren't totally sold on the price/expected returns, sometimes a little patience can pay off.

Since I'm under the Foolish trading guidelines, writing this now means that I have to wait a few days to buy any MDT. But when those few days are up, let's just say the stock has moved up to near the top of my "add" list. 

Matt 

3 Comments – Post Your Own

#1) On July 27, 2011 at 11:14 PM, truthisntstupid (93.32) wrote:

"...sometimes a little patience can pay off."

 I've learned a valuable lesson.  At least it only cost me CAPS points instead of money.

I am a dividend investor.  I would do well to heed what I have told others in comments I have made in blogs and following articles.

Earlier tonight, I set out to determine exactly what my actual original start price was for MDT on April 5, 2010.  My listed start price is $44.19.

OUCH!

My actual original start price on April 5, 2010 was $45.78.  At that price, the quarterly payment then ($0.2050) represented a measly 1.79% current dividend yield.

Yes, all its numbers looked awesome as compared to the past - including the dividend growth.

But at $45.78 and yielding a measly 1.79%, I was paying too much for what I value most.   I wasn't getting enough dividend for my money.

In the mid-$30s, it's a much better value.  If I had made MDT a CAPS pick at $35 then received the same diividends since then, my listed start price would now be down to $33.78.  That's not a guess.  I did the math.

Here's another lesson:  lower-yielding stocks are far less forgiving, far more slowly.  If you make a pick for a stock that yields 2% and it takes a plunge and stays down the way MDT has, those dividends won't help you make any significant progress towards compensating for your mistake for YEARS!

I consider the CAPS points lost a very good value.  They didn't cost anything.

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#2) On July 27, 2011 at 11:24 PM, truthisntstupid (93.32) wrote:

I should have said above,  that if MDT had been at $35 instead of $45.78 on April 5 2010, and I had received all the same dividends at the same ex-dividend day opening prices, my listed start price would now be $33.78.

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#3) On August 26, 2011 at 5:00 PM, TMFKopp (96.24) wrote:

Just getting back around to checking comments here (oops!). Yeah, the patience thing can be a real tough one -- it's given me a lot of problems in the past because when I like a business and the price starts to look even moderatly attractive I like to jump on it.

What I do to counteract that is try to be as stringent as possible on my valuations and only buy when my model shows a returns level that I'm comfortable with. Granted, that has its own problems b/c when you're gunning for a certain returns level you can always just tweak the model numbers until it says what you want, but it provides some level of help when I'm getting a little impatient.

Matt 

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