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Is This Dividend Stock Worth Your Time?

ZMH Dividend Chart
ZMH Dividend Chart

ZMH Dividend data by YCharts

Now it's time to answer our initial question: Is this healthcare dividend stock worth your time?

Based on its current outlook and yield I'm going to take what I suspect will be an unpopular opinion and say "No."

My reasoning rests primarily with the high level of competition in the orthopedic space. Zimmer's annual gross margin has been on a general downward trend since 2006, from 77.7% to just 72.4% last year. And operating margin has declined from 33.4% to 28.3% over the same period. There is the possibility that Biomet could help reverse this downtrend, but the integration of these two behemoths is going to take time. Translation: margin improvement likely won't be apparent until 2016 at the earliest in my opinion.

Also, Zimmer's payout ratio leaves a lot to be desired. It's perhaps a bit understandable why the company kept its payouts so low if it was eyeing an acquisition all along, but there are a handful of other medical device names that investors can consider which offer far more attractive organic growth rates and pay out a larger percentage of their earnings on an annual basis.

You could certainly do a lot worse than Zimmer, but as a dividend stock I'd give this one a pass.

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The article Is This Dividend Stock Worth Your Time? originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of, and recommends Johnson & Johnson. It also owns shares of Zimmer Holdings. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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