I have been a shareholder of Abbott Laboratories for several years. I liked the fact that the company was constantly undervalued, and also managed to offer a very attractive yield plus an above average dividend growth. My last addition to my position occurred in the final weeks of 2012. In my last analysis of the stock, I was bullish on its business going forward.
On January 1, 2013, Abbott Laboratories split into two companies, one which retained its name Abbott Laboratories (ABT), and another named Abbvie (ABBV). For every share of legacy Abbott Laboratories, shareholders received one share of Abbvie (ABBV) and one share of the new Abbott (ABT). Following the split, Abbott has declared a dividend of 14 cents/share, while Abbvie declared a dividend of 40 cents/share.
The total annual dividend combined for both companies of $2.16 is above the $2.04/share annual dividend declared by legacy Abbott in 2012. This former dividend champion had boosted distributions for 40 consecutive years. For legacy Abbott shareholders, this new dividend from the sum of the parts translates into the 41st consecutive year of higher dividend income.
Abbott (ABT) is focused on nutritionals, diagnostics, generic drugs and medical devices. The company yields 1.70%, but has the potential to grow earnings significantly over the next few years. Abbott Laboratories is expected to earn $1.95/share in 2013, which translates into a forward P/E of 16.80.
Abbvie (ABBV) is focused on numerous drugs including Humira, Kaletra, Lupron, Synagis etc. Abbvie is expected to earn $3.06/share in 2013, which translates into forward P/E of 12.20. The company also yields 4.40%, and has an adequately covered distribution.
Usually spin-offs perform very well after the event, with the stocks delivering outstanding returns on aggregate in the first year or two after the event. I would wait for a few years to see how both companies develop as separate entities. So far, Abbvie looks like a company that is more mature and therefore pays out a higher proportion of earnings than Abbott. Hence, Abbvie’s yield at 4.40% is higher than the yield on Abbott. However, since both companies have not had a chance to operate for long periods of time, I would simply hold on to my position.
Full Disclosure: Long ABT and ABBV
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With inflation tame, no one wants to increase divi... - With inflation tame, no one wants to increase dividends. Keeping the dividend the same, in a deflationary environment, is like raising the dividend.
3 hours ago