Updated on October 30th, 2023 by Bob Ciura
Abbott Laboratories (ABT) has increased its dividend for over 50 consecutive years. As a result, it has joined the list of Dividend Kings.
The Dividend Kings are a group of just 51 stocks that have increased their dividends for at least 50 years in a row. Given this longevity, we believe the Dividend Kings are among the highest-quality dividend growth stocks to buy and hold for the long term.
With this in mind, we created a full list of all 51 Dividend Kings. You can download the full list, along with important financial metrics such as dividend yields and price-to-earnings ratios, by clicking on the link below:
Abbott is a diversified healthcare giant, and we believe it has a long runway of growth up ahead. While the stock appears slightly overvalued, it can continue to be relied upon for annual dividend increases.
This article will discuss the company’s business overview, growth prospects, competitive advantages, and expected returns.
Business Overview
Abbott Laboratories is a healthcare stock with a market capitalization of $161 billion. The company was founded in 1888 and is headquartered in Lake Bluff, Illinois.
Abbott operates in four main segments: Nutritional Products, Established Pharmaceuticals, Diagnostics, and Medical Devices, and enjoys a leadership position across product segments.
Source: Investor Presentation
Abbott reported third-quarter earnings on October 18th. For the quarter, the company generated $10.1 billion in sales (62% outside of the U.S.), representing an 2.5% decrease compared to the third quarter of 2022, but this was a deceleration from the decline seen in the preceding period.
Adjusted earnings-per-share of $1.14 compared to $1.15 in the prior year. Revenue was $320 million more than anticipated while adjusted earnings-per-share was $0.04 better than expected.
U.S. sales fell 6.8% while international grew by 0.2%. Company-wide organic sales were lower by 1.5%. Excluding Covid-19 testing products, organic growth was 13.8%.
Source: Investor Presentation
Nutrition improved 18.1% organically as the company continues to see a recovery in market share of its infant formula business following a stoppage of production in 2022. Diagnostics fell 31.9%, mostly due to fewer Covid-19 tests being sold. Excluding this, revenue was higher by 10.1%.
The company’s high-quality product portfolio should fuel strong growth for the next several years.
Growth Prospects
Looking ahead, Abbott Laboratories has two major growth prospects for the years to come. The first is the aging population, both within the United States and internationally. In 2019, the percent of the global population that exceeded age 65 was 9.1%. This proportion is expected to reach 16.7% in 2050.
As people age, they tend to need more medical treatments, including many of the therapies that Abbott produces.
The second broad tailwind that will benefit Abbott Laboratories is the company’s focus on emerging markets. This is particularly true for its Branded Generic Pharmaceuticals segment.
Abbott has a strong position in growth markets such as diagnostics. It is the market leader in point–of–care diagnostics, and cardiovascular medical devices.
Lastly, earnings-per-share will be boosted by share repurchases, which is something Abbott spends billions of dollars on annually.
As a result, Abbott should be able to generate attractive long–term growth rates for both earnings–per–share and dividends. Overall, we expect 5% annual earnings-per-share growth for Abbott over the next five years.
Competitive Advantages & Recession Performance
Abbott Laboratories’ first competitive advantage is its brand recognition among its consumer medical products, particularly in its Nutrition segment.
Led by noteworthy products like the Ensure meal replacement supplement, Abbott Laboratories brands allows its sales to stand strong through even the worst economic recessions.
The second component of Abbott’s competitive advantage is its focus on research and development. The company’s R&D expense over the last five years is shown below:
- 2018 research & development expense: $2.3 billion
- 2019 research & development expense: $2.4 billion
- 2020 research & development expense: $2.4 billion
- 2021 research & development expense: $2.7 billion
- 2022 research & development expense: $2.8 billion
Abbott Laboratories’ investment in research & development shows that the company is willing to play the long game, building out its product pipeline and improving its long-term business growth prospects.
As a large, diversified healthcare business, Abbott Laboratories is extraordinarily recession-resistant. The company actually managed to increase its adjusted earnings-per-share during each year of the 2007-2009 financial crisis.
- 2007 earnings-per-share of $2.84
- 2008 earnings-per-share of $3.03 (6.7% increase)
- 2009 earnings-per-share of $3.72 (22.8% increase)
- 2010 earnings-per-share of $4.17 (12.1% increase)
As you can see, Abbott actually grew its earnings-per-share in each year of the Great Recession.
We expect this recession-resistant Dividend King to perform similarly well during future downturns in the business environment.
From a dividend perspective, Abbott’s dividend also appears very safe. The company has a projected dividend payout ratio of 46% for 2023. Abbott has raised its dividend for 51 consecutive years, and has paid dividends to shareholders for nearly 100 consecutive years.
Valuation & Expected Total Returns
Based on expected EPS of $4.44 for 2022, Abbott stock trades for a price-to-earnings ratio of 20.9. The current valuation is noticeably higher than its long-term average.
Our fair value price-to-earnings ratio is 20, meaning the stock appears to be slightly overvalued. A declining P/E multiple could reduce annual returns by 0.9% over the next five years.
The other major component of Abbott Laboratories’ future total returns will be the company’s earnings-per-share growth. We expect 5% annual EPS growth for the company.
Lastly, Abbott’s total returns will receive a boost from the company’s dividend payments. Shares currently yield 2.2%.
Overall, Abbott Laboratories’ expected total returns could be composed of:
- 5% earnings-per-share growth
- 2.2% dividend yield
- -0.9% multiple reversion
Total expected annual returns are forecasted at 6.3% through 2028. Given how the valuation has declined, we now rate Abbott a hold.
Final Thoughts
Abbott Laboratories has a long history of growing its profits and dividends, thanks to its strong brand portfolio. While the company’s current valuation fractionally exceeds its long-term average, Abbott Laboratories remains a hold.
If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Aristocrats List: S&P 500 stocks with 25+ years of dividend increases.
- The Blue Chip Stocks List: contains stocks on either the Dividend Achievers, Dividend Aristocrats, or Dividend Kings list.
- The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: