When a dividend stock in my portfolio hits certain milestones, I like to do an evaluation on what is going right or wrong with it. In this particular situation, Abbott Laboratories is nearly down 10% overall from where I have been dollar-cost averaging it. Abbott Laboratories (ABT) is engaged in the discovery, development, manufacture, and sale of a portfolio of science-based health care products which operates in four segments: Diagnostics, Medical Devices, Nutritionals and Generic Pharmaceuticals. On July 17, 2013, the company reported second-quarter earnings of $0.46 per share, which beat the consensus of analysts' estimates by $0.02. Since last writing about the stock back on September 9, 2013, the stock is down 0.99%, and is losing to the S&P 500, which has gained 0.07% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth picking up some more of the stock right now for the healthcare sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 13.22, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 14.89 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.23 per share and I'd consider the stock inexpensive until about $33. The 1-year PEG ratio (1.11), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 11.07%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 11.07%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.87%. Below is a comparison table of the fundamentals metrics for the company from the last time I wrote the article to now.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.69% with a payout ratio of 36.3% of trailing 12-month earnings while sporting return on assets, equity and investment values of 7.4%, 16.3% and 1.3%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.69% yield of this company is good enough for me to take shelter in for the time being if I'm initiating a new position. Below is a comparison table of the financials metrics for the company from the last time I wrote the article to now.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in oversold territory with a value of 39.17 with flat trajectory, which does not tell us much. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is below the red line, but the divergence bars are also flat in height, meaning we can trade sideways in the stock. As for the stock price itself ($33.03), I'm looking at $33.73 to act as resistance and $31.88 to act as support for a risk/reward ratio, which plays out to be -3.48% to 2.11%.
- Recently Bloomberg published a report which stated there may be tougher rules for medical device approvals in Europe. The stock dropped 2.1% on the news.
- The company declared a $0.14 per share quarterly dividend with an ex-date of 11Oct13 and pay date of 15Nov13.
The tougher approval procedure is the only news I could find which could have made the stock drop in the recent past. If that is the news that is taking the stock down then consider me a buyer. I believe it to be a broken stock and not a broken company at this point. Abbott is inexpensively valued based on future earnings and fairly valued on future growth prospects (one-year outlook). Financially, the dividend payout ratio is low based on trailing 12-month earnings and I don't doubt management will be able to continue to increase the dividend going forward at double digit clips. Based on future earnings, the dividend payout ratio goes down to around 25% (if the dividend is kept steady). The technical situation of how the stock is currently trading is telling me we might be seeing some sideways movement. The short-term earnings growth potential, long-term earnings growth potential and dividend growth potential are what I like about the company. I know this stock does not qualify for some of the dividend growth investors out there because the yield isn't high enough, but every great company has to begin somewhere. I'm going to be buying a big position right here in the midst of this pullback.
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!