Friday, April 24, 2009

Abbott Labs (ABT) Dividend Stock Analysis

Abbott Laboratories manufactures and sells health care products worldwide.
The companyis a component of the S&P 500 and is a dividend aristocrat, which has been consistently increasing its dividends for 37 consecutive years. Most recently Abbott raised its quarterly dividend payment by 11% to $0.40/share.


From the end of 1998 up until December 2008 this dividend growth stock has delivered an annual average total return of 3.80% to its shareholders.

At the same time company has managed to deliver an impressive 7.60% average annual increase in its EPS since 1999. Analysts are estimating an increase in EPS to $3.65 in 2009 and $4.10 by 2010.

The ROE has largely remained between 12% and 28% after falling from its 1999 highs over 34%.
Annual dividends have increased by an average of 8.80% annually since 1999, which is higher than the growth in EPS. A 9 % growth in dividends translates into the dividend payment doubling almost every eight years on average. Since 1986 Abbott Laboratories has actually managed to double its dividend payment almost every six 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.

Abbott Laboratories is trading at a P/E of 14, yields 3.60% and has an adequately covered dividend payment. In comparison Bristol Myers Squibb (BMY) trades at a P/E multiple of 8 and yields 6.10%, while Johnson and Johnson (JNJ) trades at a P/E multiple 11 while yielding 3.50%.
I like the strong product pipeline of the company, 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. The recent acquisition of Advanced Medical Optics exposes the company in the rapidly growing market for LASIK and Cataract procedures. I am considering initiating a position in Abbott on dips.

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