Abbott Laboratories (NYSE:ABT) engages in the development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products.
Abbott Laboratories is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. Over the past 10 years the company has delivered an average total return of 8.50% annually to its loyal shareholders.
The company has managed to deliver a 4.80% average annual increase in its EPS.
The ROE has been declining over the past 10 years, from its highs in 1998 of over 40% to its lows of 12% in 2006. A declining ROE trend is a ref flag for me. I would like to see some stabilization in this ratio over the next few years.
payments have increased over the past 10 years by an average of 6.80% annually, which is slightly above the growth in EPS. A 6.80 % growth in dividends translates into the dividend payment doubling almost every 10 years. If we look at historical data
, going as far back as 1985, ABT has indeed managed to double its dividend payments every five and a half years.
If we invested $100,000 in ABT on December 31, 1997 we would have bought 3053 shares (adjusted for a 2:1 split in June 1998). Your first quarterly check would have been $412.15 in early 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $1210.62 by October 2007. For a period of 10 years, your quarterly dividend has increased by 140.75 %. If you reinvested it though, your quarterly dividend would have increased by 193.75%.
The dividend payout ratio has remained above 50% for the majority of the time over the past 10 years however. Overall, a lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Overall, I think that ABT is overvalued
at its P/E of over 22 and DPR of over 50%. The only positive is the higher than average dividend yield of 2.60%. I would only consider initiating a long position below $46, as long as the payout is closer to 50% and the dividend yield exceeds the yield on the SPY.
Full Disclosure: I do not own shares in ABT