Medtronic is an undervalued AI stock with an elite dividend program.
Artificial intelligence (AI) is ushering in a new era of innovation that promises to upend industries across the spectrum, and the medical device field is decidedly not immune.
By leveraging AI’s immense computational power and predictive capabilities, medical device makers can accelerate research and development, enhance product design, and unlock novel treatment pathways that were previously unimaginable.
Image source: Getty Images.
As this AI revolution takes hold in healthcare, one company is particularly well positioned to capitalize on the transformative potential of this powerful technology: Medtronic (MDT -1.43%). Read on to find out more about this innovative medical device company.
An established leader in medical devices
As the world’s largest pure play medical device company, Medtronic has long been at the forefront of innovation in the industry. But the company is now doubling down on AI to maintain its edge.
Medtronic has made AI a core part of its research and development strategy, developing and deploying machine learning algorithms to accelerate the design and testing of new medical devices.
From optimizing device materials and geometries to validating product performance through virtual simulations, AI is streamlining Medtronic’s development pipelines across its vast product portfolio spanning cardiovascular, surgical, and neuroscience applications.
One key area where Medtronic is leveraging AI is diabetes management. The company’s “digital twin” initiative uses machine learning models trained on real patient data to assess product performance and identify optimal therapy settings for different individuals.
Beyond product innovation, AI also plays a role in Medtronic’s manufacturing operations. AI-powered processes help the company produce reliable devices more efficiently, driving costs down and profit margins up.
A top pick for dividend-growth investors
While Medtronic is charting the future of medical devices through AI innovation, the company is also an attractive option for dividend-growth investors seeking a highly reliable income play.
Medtronic has increased its dividend payout for 47 consecutive years, putting it in an elite company. With a current dividend yield of 3.3%, it also offers a yield nearly double that of the average S&P 500 stock.
Now, Medtronic’s five-year dividend-growth rate of 5.3% is below average for its particular peer group. But the medical device behemoth does have a history of boosting the size of its dividend checks at an above-average level over the past 10- and 20-year periods (author’s data).
Once its AI initiatives begin to bear fruit, Medtronic should be able to get back to delivering market-leading levels of dividend growth.
Despite its leadership position and stability, Medtronic trades at just 15.4 times forward earnings, a relatively reasonable valuation compared to other large-cap dividend-growth stocks. Digital-payments juggernaut Visa, for example, trades at nearly 25 times forward earnings. This dividend-growth stock is thus cheap for its category.
Key takeaway
Medtronic is projected to deliver mid-single-digit earnings growth in 2025. However, the rising demand for healthcare globally and its AI-driven innovation engine position it for substantially higher levels of growth in the years ahead.
In the meantime, investors can bank on the medical device titan’s stellar dividend. Medtronic’s exceptionally low price-to-earnings (P/E) ratio also offers investors a convenient way to add a layer of value to their portfolio.
George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
