Prior to the spinoff of Abbvie (NYSE:ABBV) from Abbott Labs (NYSE:ABT) in early 2013 the joint company used to pay a pretty good dividend of 2.83% and post-split Abbott now pays a 1.52% yield while Abbvie pays a 3.58% yield. The aggregate of the companies delivers a quarterly dividend rate of $0.54 as opposed to the $0.51 rate prior to the split. After the split Abbott retained the generics pharmaceutical and nutritional business, which should drive growth for the stock price and the dividend for the future. If you want a very good example of a nutritional company that did well after a spin-off you don't have to look any further than Mead Johnson Nutrition (NYSE:MJN). Mead Johnson is up nearly 200% and pays a dividend yield of 1.68% since being spun off from Bristol-Myers Squibb (NYSE:BMY) back in 2009.
Some Abbott products you may recognize include Pediasure, Prevacid, Ensure and Blink. Abbott reported most recently on April 17, 2013, and closed that day +2.42% with adjusted EPS up 3% while revenue was up 3.5% (excluding foreign exchange) based on strong performance in the nutrition and diagnostics segments as well as emerging markets. As the emerging market populations all over the world begin to get wealthier the first thing they will begin to do is eat healthier and/or eat richer. By eating healthier you can count on Abbott nutrition bars to be consumed such as Glucerna or Zone Perfect. For the people whose stomachs have long yearned for eating rich and unhealthy foods you can almost count on heartburn to occur and Abbott has an answer to that in the form of Prevacid. Whichever way you want to look at it, emerging economies are growing and their people have been salivating for quite some time just to be able to eat some developed economy foods; Abbott has answers in the nutrition side of the business.
During the month of April Jeffries Group reiterated its buy rating on the stock while raising the price target from $40 to $42. Deutsche Bank also reiterated its hold rating but raised its price target from $33 to $35. Stifel Nicolaus also maintained a buy rating but increased the price target from $40 to $44. Several other firms maintained their ratings on Abbott and also increased their price targets. The constant reiteration of the rating but small incremental increases in price targets shows that analysts are not willing to stick their necks out too far but are willing to say the stock will move upwards. That's what I like to call "being cautiously optimistic."
Though Abbott reported earnings that were in-line and guided in-line for the next quarter it is in a defensive sector and everybody is going to continue to run to the stock for safety in case of a market downturn. Personally I believe the stock is actually a growth company with the emerging markets story and would continue to buy it for the growth story as opposed to safety. The company's history of raising the dividend sure doesn't hurt either. I've been accumulating Abbott from before the split with Abbvie but I will certainly be buying more of it because I believe in the emerging markets nutritional story; I once used to own Mead Johnson for the same reason.
Disclosure: I am long ABT, ABBV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!