Friday, March 12, 2010

Abbott Laboratories (ABT) Stock Analysis

Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company is a component of the S&P 500 and the dividend aristocrat indexes. Abbott Laboratories has increased dividends for 38 years in a row. Most recently Abbott raised its quarterly dividend payment by 10% to $0.44/share. Dividend author Dave Van Knapp has included the company in his most recent book "The Top 40 Dividend Stocks for 2010".

For the past decade this dividend stock has delivered a total return of 7.3% annually.

At the same time the company has managed to increase earnings per share by 8.40% on average since the year 2000. For fiscal years 2010 and 2011, analysts expect EPS to increase to $4.24 and $4.77. This would be a nice increase from the $3.69 in earnings per share that the company booked for FY 2009. Analysts also expect an over 7% increase in sales for FY 2010 to 33 billion dollars, excluding the recently completed acquisition of Belgium based Solvay’s pharmaceuticals unit. This deal would add $0.10/share in FY 2010 and $0.20/share in FY 2011. I like the strong product pipeline of Abbott, as well as the potential for new launches. There could be some generic competition for some of Abbott’s products but overall the forecast for future revenue increases is quite rosy. Last year’s acquisition of Advanced Medical Optics exposes the company in the rapidly growing market for LASIK and Cataract procedures.
The company also delivers a little over half of its sales from international markets. Almost 18% of its sales come from the drug Humira, which treats rheumatoid arthritis and psoriatic arthritis. This drug is expected to continue delivering strong sales growth in the next few years for Abbott Labs. In June 2009, a federal jury has returned a verdict of $1.67 billion against Abbott Laboratories in a patent infringement suit. The other party to the suit was Johnson & Johnson (JNJ). Abbott Labs (ABT) is currently appealing the verdict.

The ROE has largely remained between 12% and 28% after falling from its 2000 highs over 34%.

The company has managed to increase its annual dividend by 8.60% on average over the past decade. A 9% increase in dividends translates into the dividend payment doubling every 8 years. Since 1986 Abbott Laboratories has managed to double its dividend every 6 years on average.

The dividend payout ratio has largely remained above 50% over the past decade, with spikes in 2001 and 2006 caused by lower earnings. 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 the dividend payout ratio is below 50%.

Overall Abbott Laboratories (ABT) is attractively valued currently, trading at a P/E of 15, dividend yield of 3.20% and an adequately covered dividend. While I don't expect to earn as much as this early Abbott Labs (ABT) investor, I still believe that there is room for substantial total returns in this position. I would consider be adding to this position.

Full Disclosure: Long ABT

Relevant Articles:

- Four notable dividend increases
- Dividend Growth beats Dividend Yield in the long run
- Dividends Stocks versus Fixed Income
- Not all dividend stocks are overvalued

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  1. Grace Groner had a total return of 15.1% average annual return for the 75 years she owned the ABT stock. This included dividends reinvested, stock splits, stock buybacks plus some nice growth from ABT.

    The main message from this article in that dividend reinvestments contibuted about $6M of the 7M gains and thus are very important.

    The article does not mention the taxes she would have had to pay on the reinvested dividends.

  2. I would say that the maximum amount of dividend taxes on $300K in annual dividend income is 15%.

  3. the best dividend stock banc of america

    1 dollarcent each qrt 4 dollarcent each year


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