Abbott Stock Analysis

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company is a dividend aristocrat which has increased distributions for 39 years in a row. The most recent dividend increase was in February 2011, when the Board of Directors approved a 9.10% increase in the quarterly dividend to 48 cents/share. Abbott’s largest competitors include Johnson & Johnson (JNJ), Bristol-Myers Squibb (BMY) and Sanofi (SNY).

Over the past decade this dividend growth stock has delivered an annualized total return of 3.50% to its loyal shareholders.

The company has managed to deliver an average increase in EPS of 12.90% per year since 2001. Analysts expect Abbott Laboratories to earn $4.65 per share in 2011 and $5.03 per share in 2012. This would be a nice increase from the $2.96/share the company earned in 2010.

The company has a high return on equity, which has remained above 20%, with the exception of a brief decrease in 2001 and 2006. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 8.60% per year since 2001. A 9% growth in distributions translates into the dividend payment doubling every eight years. If we look at historical data, going as far back as 1986, we see that Abbott Laboratories has actually managed to double its dividend every six years on average.

Over the past decade the dividend payout ratio has largely remained above 50%. This indicator has been closer to 50% over the past few years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Abbott Laboratories is attractively valued at 15.60 times earnings, yields 3.80% and has a sustainable dividend payout. In comparison Johnson & Johnson (JNJ) yields 3.60% and trades at a P/E of 12.70. I would continue monitoring Abbott Labs and will consider adding to a position in the stock on dips.

Full Disclosure: Long ABT

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