Abbott Laboratories (ABT) is a blue chip health care stock offering income investors a 3.3% dividend yield. This is an attractive yield when compared to current Treasury Bond yields. As of Wednesday, March 28, a 30 year Treasury Bond yields 3.31%. Abbott management has taken positive action to unlock shareholder value. The planned spin off of AbbVie. AbbVie will represent the company's research based pharmaceutical company. The potential net dividend yield could increase due to the synergies created through the corporate spin off restructuring.
On December 9, 2011, Abbott declared a quarterly dividend of 48 cents per share, its 352nd consecutive dividend since 1924. With a full year dividend of $2.04 and with shares trading at $61.12 (as on March 28, 2012), Abbott offers a dividend yield of 3.3%, just about in line with inflation. With 2011 full year earnings of $3.01 per share, its dividend payout ratio is about 68%. The company's 2012 earnings per share are expected to be $5.01. The dividend will equate to about 40% of the total earnings.
There will be one time expenses for the break up into two separate companies. Investors should anticipate these costs each quarter as the break up becomes closer and closer to completion.
Abbott is one of the world's leading pharmaceutical and health care products and services providers. Abbott's headquarters are in Chicago, IL and it has two primary research centers in Worcester, Massachusetts and Ludwigshafen, Germany. Abbott was founded in 1888, more than 120 years, ago by Dr. Wallace C. Abbott in Chicago and has since grown into the global leader that it is today.
Abbott provides a select range of pharmaceutical products, nutritional products, diagnostic instruments and tests, medical and surgical devices, animal health products and vision technologies. Its pharmaceutical products cover anesthesia, anti-infectives, cardiovascular, immunology, metabolics, neuroscience, oncology, pain care, renal care and virology. Its medical products cover animal health, diabetes, diagnostics, hematology, molecular, point of care and vascular, and its nutritional products cover pediatric nutrition, healthy living and medical nutrition.
Some of Abbott's brands include drugs such as Brufen, Prevacid and Vicodin, nutrition products such as Ensure, Pedialyte and Similac, diagnostic instruments such as AneuVysion, RealTime HIV-1 and UroVysion, medical and surgical devices such as RX Acculink Carotid Stents and Veripath Catheter and vision technologies such as ILasik and RevitaLens.
Over the years, Abbott has won multiple awards for corporate social responsibility, innovation, diversity and management quality. The company employs 91,000 employees worldwide and has annual revenue of over $38 billion.
Over the years, Abbott has grown its business into multiple categories. However, management now plans to split the company into two, with one part focused on research based pharmaceuticals and the other focused on diversified medical products. This breakup is expected by the end of 2012.
The research focused company will be called AbbVie. It will focus on Abbott's portfolio of proprietary pharmaceuticals and biologics and expand on its $18 billion revenue base and pipeline of innovative research and development.
The diversified medical products company will continue to be called Abbott and will include Abbott's branded generic pharmaceuticals, devices, diagnostics and nutrition businesses, with a revenue base of roughly $20 billion.
At both companies, Abbott will continue to focus on research and development, clinical trials and FDA approval for its various products, selective collaborations to jointly develop and commercialize drugs and products with other healthcare companies, and the launching of new products.
For its fourth quarter ended December 31, 2011, Abbott reported total sales of $10.4 billion, 4.1% more than the $10 billion reported in 4Q 2010. 43% of its sales were from the U.S. while 67% were international. 46% of its total quarterly sales were from proprietary pharmaceuticals, 15% from nutritionals, 13.4% from established pharmaceuticals and its other products made up the balance. For the quarter, Abbott reported operating earnings of $2.1 billion, a 13.8% year over year increase, and net earnings of $1.6 billion, 12.3% higher than 4Q 2010. Earnings per share were $1.02, a 10.9% increase over the 92 cents earned in fourth quarter 2010.
For the full year, Abbott reported total sales of $38.9 billion, a 10.5% increase over 2010. Operating earnings were $5.8 billion, 5.5% less than 2010 primarily due to increases in cost of sales, research and development, and selling, general and administrative expenses in 2011. Net earnings for the full year were $4.7 billion, 2.2% higher than 2010, and full year earnings per share was $3.01. Abbott generated $9 billion in net cash from operations in 2011.
As on December 31, 2011, Abbott held cash and cash equivalents of $6.8 billion, total assets of $60.3 billion, debt of $15.4 billion and shareholders' equity of $24.5 billion. Debt was roughly 25% of total assets.
Looking ahead, Abbott expects 2012 full year earnings per share of $5.00, well above 2011 earnings of $3.01.
Earnings Estimates for 2012 - 2021
As of March 27, 2012, Abbott shares traded at $61.33 with a market capitalization of $96.4 billion (3.9x book value) and a price to earnings ratio of 20.4x. Shares are at an all-time high and at the top of their 52 week range of $46.29-$61.49, likely due to an overall bull market compounded by Abbott's pending plans to divest itself into two companies that could enhance shareholder value.
Abbott's peers and competitors include larger pharmaceuticals and medical products providers.
Johnson & Johnson (JNJ)
Johnson & Johnson is a major global health care business. Core business segments include baby care, skin care, and wound care. The company offers a 3.5% dividend yield. The company has returned an average annualized rate of return of 3.4% over the past 4 years.
The CEO, William Weldon, will step down in April. Alex Gorsky will become CEO. His prior background has focused upon the company's Medical Device & Diagnostics unit.
Pfizer is a biopharmaceutical company focused upon developing new products for global sale. Core products include Celebrex, Lyrica, Premarin, and Pristiq. Lipitor is now available as a generic, Pfizer has lost the growth status it once held a decade ago. The 4.00% dividend yield is a positive aspect.
Merck and Schering-Plough merged in November 2009l. Presently Merck is the second largest global health care company. The company is facing Singulair having generic alternatives this year. The company has a wide product line including vaccines. The company raised the 1st quarter dividend to 42 cents. The current annual yield is 4.3%, a high yield for the large health care sector.
Bristol Myers Squibb (BMY)
Bristol Myers Squibb apparently offered $22 per share for Amylin Pharmaceuticals, Inc. (AMLN). Amylin was up 54% today, March 28th, due to the offer. The company lost Plavix to generics in 2011. In 2012, Bristol Myers will lose key product Avapro. Avapro goes off patent this year. It appears Bristol Myers wants to use their $9 billion cash balance to acquire new products to replace the products lost to generics.
All of these peers provide a dividend yield that is marginally higher than Abbott with a peer median of 4% and sport price to earnings multiples that range between 10.2x (LLY) and 18.7x , slightly less than Abbott. As mentioned earlier, Abbott's shares have likely received a boost from the company's impending split.
I own shares in Abbott. The company is trading at an 11-13x 2012 price to earnings multiple. The spin off should create shareholder value. I would wait for a share pullback to accumulate shares. The stock is at a 52 week high. An appropriate entry price would be $55 - $56. Allow the stock to back down before accumulating a position.
Disclosure: I am long ABT.