Covidien Stock Analysis: Look for Dividends in Long-Term

Summary Covidien (COV) is a large, multi-national health care company diversified into medical devices, pharmaceuticals, and medical supplies. The company was spun off from Tyco in 2007. Analysts expect approximately 10% compounded EPS growth over the next two years, based on 2011 and 2012 estimates. The balance sheet is mediocre, with a moderate LT Debt/Equity ratio, fair interest coverage ratio, but a lot of goodwill from acquisitions. The dividend yield is pretty low, at only 1.70% with a low payout ratio, and due to the spin-off has no substantial dividend history. This being the case, many dividend investors won’t bite, but with growth in an industry with positive long-term prospects, investors can potentially look forward to high capital gains and a high yield on cost. Overall, with a P/E of 15.4, I find Covidien to be a reasonably attractive investment choice, if not for dividend investors then at least for value or GARP investors. The dividend is a bit low for my liking (especially since I have the goal of increasing my average portfolio yield this year), but this stock is at least worth a look for anyone’s portfolio.... Read more

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