Abbott Labs: Growth Stock With an Attractive Yield
Most of the remaining 43 S&P 500 Dividend Aristocrats have strong finances and are worthy of consideration for value investors, especially those who want to upgrade dividend yields.
For example, the stock of Abbott (ABT), long time Dividend Aristocrat, has been flattish over the last 10 years, mostly in the 40s & 50s. Friday it closed at $46.46 with a yield of 3.8%. However, that performance is not so bad when compared with Dow Jones Industrials and S&P 500 which are lower. ABT is a leading pharmaceutical company founded in 1888 and has a long track record of growth. From 2002 to 2009, sales doubled to $30 billion while basic EPS rose from $1.63 to $3.71. Dividends were increased from 94¢ to $1.60 and raised another 10% this year to an annual rate of $1.76.
Abbott’s revenues are primarily from the sales of 4 broad lines of health care products (percentages are from Q1 2010 sales):
Pharmaceutical..57%
Nutritional……….17%
Diagnostics…….12%
Vascular…………10%
About 55% of sales are outside the US and, like most Dividend Aristocrats, they are looking to sales in emerging markets as a major source of future growth.
Last year Abbott added new businesses to help maintain its growing ways. Solvay Pharmaceuticals was purchased for expansion in Eastern Europe and emerging markets. They expect this acquisition to more than double their presence in emerging markets and should be accretive to EPS in 2010. ABT entered the vision care market with the purchase of Advanced Medical Optics and Visiogen. They also bought Evalve for its pioneering technology in minimally invasive treatment of mitral regurgitation (structural heart repair).
In Q1 2010, sales increased 14.6% to $7.7 billion (4.1% of the gain was due to the effect of favorable exchange rates) as their 4 major global segments delivered 12-16% growth. Excluding non recurring items, EPS rose to 81¢ from 73¢ in the prior year. Their guidance for 2010 EPS is $4.13-4.18, excluding special items, giving it a P/E of 11X. Analysts are forecasting $4.64 for 2011 which would bring the P/E down to 10X. 2010 is their 38th consecutive year of higher dividends and the Q1 dividend was the 345th consecutive one since 1924.
ABT has a long record of increasing annual dividends and its yield is attractive compared with other investments. In addition, ABT returns money to shareholders by purchasing roughly $1 billion in treasury stock annually. This adds a few pennies to EPS and represents another buyer for its stock. ABT is an excellent stock for value investors, especially if stock markets sell off further raising its yield above 4%.
Disclosure: No positions
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