A High-Quality Health Care Stock Thay Pays Dividends
Let’s work through an Abbott Labs dividend stock analysis today. Because Abbott stock holds a special place in my portfolio.
Why? I worked at Abbott for nearly 10 years.
During that time, I worked my way up the finance and accounting ranks as best I could. But that was many years ago.
I’m much happier now. Being just a part-owner making money from dividends. Not an employee earning a salary.
Abbott has changed dramatically since I was employed there. So let’s check to see how the Abbott Labs stock dividend is performing today.
I’ll kick it off with answers to a couple of key questions…
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
Is Abbott Stock A Good Investment?
First of all, Abbott stock is a good investment from my perspective. Also, Abbott is a good dividend stock.
Furthermore, I have been a long-time shareholder. And expect to hold my shares for many years to come.
Finally, if you have a long-term investment horizon. And do not mind buying on dips in Abbott stock price.
I think Abbott is one of those buy and selectively and hold forever dividend stocks. Some factors that make Abbott a good long-term investment include:
- A durable business model operating in growing markets
- Consistent quarterly dividend payments
- A high degree of dividend safety
- Excellent historical and projected dividend growth
- Opportunity for capital appreciation
Is Abbott Stock A Buy?
Abbott stock currently looks overvalued at recent price levels. This is not surprising given that Abbott’s stock price has had a strong run in recent years.
The stock appreciation has provided investors with an opportunity to make homemade dividends. For those who choose to do so.
Okay. With those questions taken care of.
Let’s dig into the details about Abbott. Starting with some background on the company.
Abbott Labs Company Background
Abbott has been in business for more than 130 years. The company is truly global and operates in over 150 countries. And has in excess of 100,000 employees.
As a company that operates in the health care sector, Abbott’s product lines are focused on 6 main areas.
First of all, Cardiovascular. These products provide innovative technologies that can improve the way doctors treat people with vascular diseases, irregular heartbeats, and diseases of the heart’s valves.
Diabetes helps people manage their health more effectively and comfortably. Abbott’s testing products provide accurate data to drive informed care decisions.
Diagnostics makes instruments, tests, automation tools, and information solutions. They allow for a fast and accurate diagnosis of a patient’s condition. These products are sold to hospitals, reference labs, blood centers, emergency departments, physician offices, and clinics.
Neuromodulation treats people living with chronic pain and movement disorders. Abbott’s portfolio of therapies helps them move and feel better. Hence, reducing chronic pain.
Nutrition produces science-based nutrition products for people of all ages. Brand name products include Similac, PediaSure, Pedialyte, Ensure, Glucerna, EAS, and ZonePerfect.
Finally, the pharmaceutical area brings trusted brands to people in developing countries around the world. Treatments concentrate on gastroenterology, women’s health, cardiovascular, pain management, central nervous system disorders, respiratory and influenza.
Source – Abbott at a glance
Abbott Labs Stock Symbol
Abbott stock trades on the New York Stock Exchange (NYSE). It trades under the ticker symbol ABT (NYSE: ABT).
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Moving right along. That completes the business overview portion of our Abbott stock analysis. Next up, dividends…
Facts And Figures About The Abbott Stock Dividend
Let’s work through the Abbott dividend metrics now. Then we will know precisely how dividend payouts work at Abbott Labs. And, what an investor can expect from Abbott dividends.
How Much Is Abbott’s Dividend Per Share?
On an annual forward basis, the Abbott stock dividend payout is $1.80 per share.
The annual forward dividend is the last dividend payment approved by the company. Multiplied by the number of times a company pays dividends each year.
What Is The Abbott Stock Dividend Yield?
Their dividend payout provides a 1.5% stock dividend yield at the recent stock price.
The ABT stock dividend yield is a little low for my liking. Because regular readers know I prefer owning stocks with dividends in a 3-5% yield range.
Maybe the company’s dividend growth rate can make up for the low dividend yield? We will get to that topic in just a moment.
How Often Does Abbott Pay Dividends?
Abbott is one of many stocks that pay dividends every 3 months or 4 times per year. Each quarterly dividend payment is one-fourth of the annual dividend rate.
When Are Abbott’s Dividends Paid?
What months does Abbott pay dividends? The dividend payment months are February, May, August, and November.
This is a typical dividend payment pattern. For a U.S.-based company that pays regular dividends.
What Is The Ex-Dividend Date for Abbott Stock?
For an investor to receive the next ABT stock dividend payout, they must complete their purchase before the ex-dividend date. Abbott’s ex-dividend date is in the middle of the month prior to when it pays a dividend.
The ex-dividend date is slightly different for each quarterly dividend payment. So, it’s best to check Abbott’s dividend history page on its investor relations website. For the exact date of each payment.
Or, be on the look out for the latest press release. That annouces the upcoming dividend payment for shareholders.
Abbott Dividend History
Next, this is sourced from the Abbott investor relations website.
Dividends are an important part of Abbott’s heritage and investment identity. Abbott has declared consecutive quarterly dividends since 1924 and has increased the dividend payout annually since 1973.
Abbott Historical Dividend Growth Track Record
The company goes on to state the following about its dividend payment practices.
Abbott is a member of the S&P 500 Dividend Aristocrats Index, which tracks companies that have annually increased their dividend for 25 consecutive years.
I really like it when a company touts its dividend track record. Unlike some companies that do not believe in paying dividends.
Certainly, Abbott is not a high yield stock to get excited about. But, Abbott’s dividend history is impressive.
Recent dividend growth has been strong too. So let’s check out Abbott’s dividend growth rate next. And see exactly how it measures up.
Abbott Labs Dividend Growth Rate
Abbott’s dividend increase history over the past 7 years is shown in the table below. Rapid dividend growth like Abbott delivers is one of the advantages that dividend stocks provide. They act as a hedge against inflation.
Table 1: ABT Compound Annual Dividend Growth Rate
|1 Year||3 Years||5 Years||7 Years|
Abbott’s dividend yield is fairly low at less than 2%. So, it is nice to see a series of double-digit percentage dividend increases. In my opinion, this is a company giving investors high dividend growth.
Abbott Dividend Increases
In fact, the last 2 annual Abbott dividend increases have been outstanding. Most recently, 25%. And the year before, a 12.5% dividend increase!
What kind of stock is Abbott? A dividend growth stock. My favorite kind of stock that pays dividends!
Next, let’s move on to some of the business fundamentals. And see if they tell us what is supporting Abbott’s dividend growth.
Abbott Labs Revenue Trend
As chart 1 shows, Abbott has been successful at growing revenues. And, acquisitions have been a big part of it.
Chart 1: Abbott Labs 7-Year Revenue Trend
In 2017, the company purchased St. Jude Medical for $25 billion. This acquisition established Abbott as a leader in the medical device area.
After clearing regulatory hurdles. They also acquired Alere for $5.3 billion in 2017. This made Abbott a leader in the $7 billion point-of-care diagnostics market.
On the downside, paying for these acquisitions likely kept Abbott’s dividend increases in 2017 and 2018 on the smaller side. However, the 2019 and 2020 increases have more than made up for it.
Abbott Labs Dividend Payout Ratio
Due to the acquisitions, accounting earnings shown in chart 2 are difficult to interpret. Because of this, Abbott also reports an adjusted non-GAAP earnings number (not shown).
Chart 2: 7-Year Trend of Abbott Earnings And Dividends Per Share
Adjusted earnings factor out the impact of intangible asset amortization, restructuring costs, and other expenses. Mostly due to the accounting requirements for their acquisitions. Adjusted earnings provide a much smoother profit trend over the long run.
Regardless, the last 2 years in the chart show the Abbott dividend payout ratio based on earnings running at 60%. This is a very safe level for a company that has such a steady demand for its products.
Let’s also look at Abbott’s dividend payments compared to free cash flow. This will also help in assessing dividend safety.
Abbott Dividends Paid Vs. Free Cash Flow
Over the past three years, Abbott’s stock dividend distributions have run at less than 50% of free cash flow. This is a comfortable dividend payout ratio.
Chart 3: Abbott 3-Year Trend of Dividends Vs. Cash Flow
Abbott has used the balance of its cash flow to aggressively reduce debt. So, let’s look at the company’s financial position next to see the impact.
Abbott Credit Rating and Balance Sheet
Moody’s and S&P rate Abbott A3 and A, respectively. Their ratings represent “investment grade – low credit risk” evaluations.
Table 2: Credit Rating Evaluation Grid
Abbott took on a significant amount of debt to fund the acquisitions of St. Jude and Alere in 2017. However, as I just mentioned, the company has reduced that debt in subsequent years.
It’s nice to see that Abbott’s credit rating has improved since I last reviewed the company. This is likely a sign of the reduced debt load. Since the company’s debt to equity ratio stands at only .6 to 1.
On a side note, be sure to keep an eye on your personal credit score. I check mine for free using Credit Karma. You can learn more about Credit Karma here.
Furthermore, investing in dividend stocks is just one aspect of solid money management. It’s also a good idea to treat your entire financial picture as a business.
To do so, I manage all of my investments and spending in one place. By using web-based Personal Capital. You can learn more about Personal Capital here.
But now, back to Abbott. And, let’s talk dividend safety…
Abbott Stock Dividend Safety
I make a judgment about dividend safety for every dividend stock I own. It helps me to avoid dividend reductions from stocks in my dividend stock investment portfolio.
To do this, I assess the factors we have discussed thus far:
- Business fundamentals
- Abbott’s dividend payout ratios
- Historical dividend track record
- Credit ratings
- Financial position
Certainly, Abbott has a long history of making rich dividend payments. Supported by positive business fundamentals.
Based on this and the other areas just mentioned, I view Abbott’s dividend to be very safe from a reduction for the foreseeable future.
Abbott Labs Stock Dividend Growth Forecast
In order to make a plan for future dividend income from Abbott Lab’s stock, I make a forecast of annual dividend growth.
My Abbott stock dividend forecast is based on:
- Historical dividend growth
- Dividend payout ratios
- Business fundamentals
- Company growth strategy
- Company dividend policy (when provided)
If find this information valuable to forecast dividends. And overall good points of interest for dividend stock research.
My best estimate is that Abbott’s dividend will increase by 7-9% annually. Over the long-run.
Next, stock valution. Then I will wrap this up.
Abbott Labs Stock Valuation
At the moment, Abbott Labs stock looks overvalued to me. Let’s look at the value of Abbott’s stock from a couple of different perspectives to prove this out.
Abbott Dividend Discount Valuation Model
First up, I used the Gordon Growth Model to calculate a fair value for Abbott’s stock price. The model considers several of the factors discussed thus far. Specifically,
- The current annual dividend payment
- Projected dividend growth
And one item I have not discussed. My desired annual return on investment of 10%.
Using these assumptions, the model estimates the fair value of Abbott stock to be $97 per share.
Morningstar Fair Value Estimate
This may just be a coincidence. However, the investment analysis firm Morningstar also places a fair value estimate on Abbott stock at $97 per share.
Simply Investing Report Valuation of Abbott Stock
The Simply Investing Report has strict rules to judge a stock’s value. Those rules are based on:
- Stock price to earnings ratios
- Current dividend yield versus the long-term average dividend yield
- Stock price to book ratios
Currently, Abbott Labs stock is considered overvalued by the Simply Investing Report.
I frequently refer to my Simply Investing report. Simply Investing delivers it my inbox on a monthly basis.
It is full of recommendations on the best dividend stocks to buy now. For long-term total returns.
Abbott Labs Stock Valuation Conclusion
That’s our look at Abbott stock valuation. All measures indicate that Abbott stock is currently overvalued.
Okay. It’s time to wrap this up…
Abbott Dividend Stock Analysis Wrap Up
First of all, Abbott is a very well-run company. They have a strong operating history and pay a consistent stream of dividends.
Furthermore, Abbott has an excellent dividend growth track record. Making it one of those good dividend stocks to keep an eye on for buying opportunities.
Finally, Abbott stock holds a mid-size position in my dividend stock portfolio. I expect to hold my position for the long-term. And continue collecting my quarterly Abbott stock dividends.
But I’m not ready to buy more Abbott stock right now. I am only interested in making add on buys at or below $100 per share.
More Articles About Dividends From the Health Care Sector & Beyond
- An attractive pharmaceutical dividend growth stock
- Medtronic dividend stock review for dividends from medical devices
- Abbott is a top holding in this Vanguard dividend ETF
My Favorite Dividend Investing Resources
The dividend investing and personal finance resources I mentioned in this article are summarized here for your convenience.
I use all of them. To make the most of my money and investments.
Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.