If you consider yourself a dividend investor, asking yourself the following question may aid in your success: What separates the wheat from the chaff among dividend stocks? Such a question gets you thinking about what makes a great dividend stock.
I would contend that an established track record of dividend growth is what matters most. Having doubled its quarterly dividend to the current rate of $0.14 per share in the past five years, LeMaitre Vascular (LMAT -1.28%) is arguably one of the "good" ones among dividend payers.
Let's weigh the company's fundamentals to learn what is supporting this dividend growth.
LeMaitre Vascular delivers results for shareholders
If you or anybody you know has ever had vascular surgery, there's a good chance the surgeon used at least one of the many products LeMaitre Vascular manufactures and sells. Out of the 22,000 vascular surgeons in the world, over half use the company's lineup of products. That explains how LeMaitre boasts the leading or second-best market share in nine of the 12 markets in which it has operations, including carotid shunts, occlusion catheters, and angioscopes.
| Metric | Q2 2022 | Q2 2023 |
|---|---|---|
| Organic sales growth rate (YOY) | 8% | 16% |
| Net margin | 15.4% | 16.4% |
Data source: LeMaitre Vascular. YOY = year over year.
The Massachusetts-based medical devices company recorded $50.1 million in sales for the second quarter ended June 30, up 19% over the year-ago period. Thanks to the strong underlying demand for its products and its leadership in numerous categories, LeMaitre passed 9% price hikes onto its hospital customers. Few other established products exist for vascular surgeons to switch to in terms of alternatives, and LeMaitre is a trusted brand, so these higher prices were mostly tolerated.
As COVID-19-related concerns have mostly dissipated, the company posted 7% unit volume growth in the quarter. These factors are what led to robust top-line growth during the quarter.
LeMaitre's non-GAAP (adjusted) diluted earnings per share (EPS) climbed 24.8% higher year over year to $0.37 for the second quarter. Due to disciplined cost management, the company's sales rose faster than the combined cost of sales and operating expenses in the quarter. As a result, LeMaitre's non-GAAP (generally accepted accounting principles) net margin expanded by around 100 basis points during the quarter. This is why adjusted diluted EPS growth surpassed sales growth for the quarter.
As LeMaitre enters new markets, such as Thailand, and secures additional product approvals around the world, healthy growth should persist. Thus, analysts expect the company's adjusted diluted EPS to grow by 10% annually through the next five years.
Image source: Getty Images.
LeMaitre's payout hasn't reached its peak
Considering that the S&P 500 index sports a 1.5% dividend yield, LeMaitre's 0.9% yield will surely garner less of a spotlight from dividend investors. But the company's potential for dividend growth is the real story to which investors ought to be paying attention.
LeMaitre's dividend payout ratio is positioned to come in at approximately 44% in 2023. This Goldilocks payout ratio should leave the company with the capital needed to grow its operations and still hand out double-digit dividend hikes moving forward.
Amazing businesses rarely come at a bargain
After surging 27% so far in 2023, you'd think shares of LeMaitre have become too expensively valued. But for its fundamentals and reputation as a wealth compounder, the stock's forward price-to-earnings (P/E) ratio of 38.8 isn't excessive compared to the medical instruments and supplies industry average of 26.8. That is why I believe the stock could still be a buy at the current $59 share price for dividend growth investors.
