Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. This dividend champion has paid dividends since 1977 and increased them for 39 years in a row.

The company’s last dividend increase was in June 2016 when the Board of Directors approved a 13.10% increase to 43 cents/share. The company’s largest competitors include Baxter (BAX), Becton Dickinson (BDX) and St Jude Medical (STJ).

Over the past decade this dividend growth stock has delivered an annualized total return of 5% to its shareholders.

The company has managed to an impressive increase in annual EPS growth since 2006. Earnings per share have risen by 8.80% per year. Analysts expect Medtronic to earn $4.57 per share in 2017 and $5.04 per share in 2018. In comparison Medtronic earned $5.16/share in 2016.

The company has consistently repurchased stock over the past decade, and has reduced its share count from 1,217 million shares in 2006 to 1,014 million in 2014. As a result of the acquisition of Covidien, the number of shares have increased to 1.423 billion

The growth in earnings per share will be achieved by introductions of new devices, strategic acquisitions, cost containment initiatives as well as increase in foreign sales. The company acquired Covidien in 2015, and is working on realizing synergies. By moving its headquarters from the US to Ireland, the company reduced its corporate tax rate from 35% to 12.50%. Some cost containment initiatives that Medtronic had started a few years ago are starting to bear fruit. Another factor that could help EPS growth is the consistent repurchase of stock by the company. New initiatives as well as expanding into non-traditional markets, could bolster growth. Last but not least, emerging markets such as China and India could present solid opportunities for growth, as emerging markets in general could deliver double digit percentage increases in sales over the next decade.

The medical equipment market is highly competitive and is characterized by short product life cycles. However, the scale of Medtronic’s operations, its continued investments in innovation as well as its diverse nature of procedures offset some of the risks mentioned in the previous sentence.

The annual dividend payment has increased by 16% per year over the past decade, which is higher than the growth in EPS. The expansion in the dividend payout ratio allowed the company to raise distributions at a rate that is higher than earnings.

One thing I wanted to mention addresses the question on foreign withholding taxes on Medtronic dividends.  Residents of the United States are not subject to a 20% withholding tax on Irish dividends. I am a US resident, holding the stock through Interactive Brokers and have not been subject to a foreign tax withholding. If you are a tax resident of any of those 72 countries, you should not be subject to a foreign withholding tax on your Medtronic dividends.

A 16% growth in distributions translates into the dividend payment doubling almost every four and a half years. If we look at historical data, going as far back as 1978 we see that Medtronic has actually managed to double its dividend every four years on average.

The dividend payout ratio increased from 16% in 2007 to 30% in 2016. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Medtronic is attractively valued at 15.60 times forward earnings, has an adequately covered dividend and yields 2.40%. I would consider adding to my position in the stock subject to availability of funds.

Full Disclosure: Long MDT, BAX and BDX