Stryker (SYK) raises dividend 12%, but stock price has risen too fast

Stryker’s (NYSE:SYK) dividend was increased by a solid 12% last week. Its overall yield is 1.45%. The firm started paying a dividend in 1993.

Stryker operates as a medical technology company.  Stryker was founded in 1941 and is headquartered in Kalamazoo, Michigan. It operates in two segments. Orthopedic products include knees, hips, spinal, and additional implant offerings. MedSurg includes other endoscopic systems, operating room devices, and specialty stretchers.

Stryker has maintained a solid three-year growth rate of dividends of 11.4 percent. Stryker currently ranks 2nd in yield within the large cap healthcare, medical instruments and supplies category. The quarterly dividend for the January payment will be $0.425 versus the prior year rate of $0.38 per share. Stryker Corp. is not a member of our Top 100 Dividend Stock List (see below).

The dividend will be paid at the new higher rate on January 31, 2017, to shareholders of record at close of business on December 30, 2016. Stryker is currently priced at $117.58. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
12/30/2016 0.425
9/28/2016 0.38
6/28/2016 0.38
3/29/2016 0.38
12/29/2015 0.38
9/28/2015 0.345
6/26/2015 0.345
3/27/2015 0.345
12/29/2014 0.345
9/26/2014 0.305
6/26/2014 0.305
3/27/2014 0.305
12/27/2013 0.305
9/26/2013 0.265
6/26/2013 0.265
3/26/2013 0.265
12/27/2012 0.265
9/26/2012 0.213
6/27/2012 0.213
3/28/2012 0.213
12/27/2011 0.213
9/28/2011 0.18
6/28/2011 0.18
3/29/2011 0.18
12/29/2010 0.18
9/28/2010 0.15
6/28/2010 0.15
3/26/2010 0.15

We examine Stryker upon our five key criteria, which include; 

Quantitative Analysis:

Category Value Score
Dividend Yield 1.45% 347
Dividend Growth (3 to 6 year avg) 24.7% 60
Forward P/E 18.35 172
S&P Financial Rating A 120
Beta 0.95 125
Total Score   824

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
1.45% 11.4% 37.9% 30.15 3.90 2.6 5.2 1.11% 1.69%

Positives;

  • Stryker maintains an investment grade credit rating.
  • Stryker has maintained a three-year growth rate of dividends of 11.4 percent.
  • Stryker is trading below its ten-year average price/sales (P/S) ratio.
  • Stryker maintains a beta of 0.95, lower than the average company.

Negatives;

  • Stryker’s dividend yield is below that of the S&P 500 Index.

Latest Earnings & Overall Analysis:

Stryker issued its earnings data on October 27th. The company reported $1.39 EPS for the quarter, topping the consensus estimate of $1.37 by two cents. This was an 11.2% increase from last year earnings results. The company had revenue of $2.8 billion in Q3, an increase of 16.7%. This compared to analyst estimates of $2.81 billion. Stryker Corp. had a return on equity of 23.61% and a net margin of 15.24%.   Stryker Corp. will post $5.78 EPS for the current year.

Results for MAKO were impressive, with nearly 30 installations of robots worldwide. This was an increase of over 75% from last year’s Q3 period. Stryker’s Mako robot on-deck will have a full launch in 2017.  The continued penetration of Mako robots is a primary growth driver for Stryker.  Management indicated that the firm should generate a minimum of 9% EPS growth annually due to their MAKO product line and diverse lineup. For Q4 2016, Stryker’s management expects earnings per share of $1.73–$1.78, slightly above expectations.  Revenue growth should be just above 6% for full-year 2016. Guidance for full year earnings for 2017 is around $6.40 a share. A higher number is possible if the 40 Mako total knee training centers are up and running in Q1 2017.

International sales were up nearly 7% from strong results in Europe and Canada. Orthopedic revenue was up just over 5% driven by knee replacement products. Surgical sales rose by one-third to $1.25 billion. Within spine, revenue was up 8.7% to $503 million.  Neurovascular sales were very strong. Overall, Stryker is a key company within the medical device industry. It has strong attributes, consistent revenue, and an investment grade credit rating. But the stock has doubled since the beginning of 2013, while earnings and dividends have climbed by half. Its yield is below that of the index. We would prefer a pullback in the stock in which the overall yield would be closer to 2%.

Stryker does not qualify as a member of our  Top 100 Dividend Stocks

Stryker Corp. Dividend Yield Chart (Click to enlarge)

syk3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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