2 Dividend-Payers for Tuesday: Abbott and Kellogg

Includes: ABT, K
by: Kendall J. Anderson, CFA
Over the years I have been invited to a number of parties that required I bring a gift to be used for a community game. In this game, each attendee gets to either pick a gift from the center pile to unwrap or may choose to take an already unwrapped gift from another person. As more gifts are opened, the choice to take one of the un-wrapped presents from another person, versus one of the unknown, still-wrapped presents, becomes harder and harder. What do you do: Take one of the known gifts or take a chance on an unwrapped one?
How you answer this question is a pretty good indicator of how you will choose your investments. If you find yourself wanting to open the pretty package because all the other gifts don’t excite you, then our “2 Stocks for Tuesday” are not for you. On the other hand, if you take comfort in choosing one already opened, then read on, as both Abbott Labs (NYSE:ABT) and Kellogg Co. (NYSE:K) are gifts ready for the taking.
The gift that Abbott and Kellogg abundantly give is one of income in the form of a dividend payment. Kellogg has paid a dividend every year since 1925; Abbott has done it one better, paying a dividend every year since 1924. Not only have they each paid a dividend, but each has had a history of raising its dividend payment. Since 2000, Kellogg has raised its dividend eight times to the current level of $1.72 (currently a 3.00% dividend yield), while Abbott has raised its dividend every one of those years to its current $1.92 dividend (currently a 3.65% dividend yield).
Our “2 Stocks for Tuesday” have not only raised their dividends, but have had a pretty good record of growing their earnings. Their increased earnings and higher dividends have been rewarded with a higher stock price. Kellogg’s price in 2000 averaged $26.40 and today is priced at $57.27. Abbott’s market price has increased from its 2000 average of $42.85 to $52.59. At first glance, this may not impress you, but we need to remember that the S&P500 average in 2000 was 1394.77 and today stands at 1361.22.
Making a decision under conditions of uncertainty is what we do as investors every day. Most of us would do better by adding a little certainty to our portfolio such as our “2 Stocks for Tuesday."
ABT is a global, broad-based healthcare company devoted to discovering new medicines, new technologies and new health management strategies. Its product development is in four major areas, including pharmaceuticals, diagnostic systems and testing products, nutritional products, and vascular products. Abbott Laboratories employs over 68,000 people worldwide, selling products in over 130 countries. Our fair value estimate is $74.49.
K is the world’s largest manufacturer of ready-to-eat cereals and a producer of cookies, crackers, frozen waffles, toaster pastries and snack bars. Kellogg manufactures in 18 countries and sells products in more than 180 countries around the world. Kellogg’s Corn Flakes has been in production for over a century. Our fair value estimate is $61.41.
Disclosure: I am long ABT, K.