ABBOTT LABS: REAPING THE DIVIDENDS OF AN AGING PLANET

By Herbert Han Cook 

Introduction

In the healthcare sector, Abbott Laboratories stands as a beacon of both innovation and consistent shareholder value, particularly through its dividends. Renowned for its diversified business model that spans across diagnostics, medical devices, nutritional products, and branded generic drugs, Abbott is not just a healthcare provider but also a robust investment choice for those focused on dividend growth. This article explores Abbott’s historical dividend performance and the potential drivers that may fuel its dividend growth in the future.

Assessing Abbott Laboratories’ Dividend Growth Track Record

Abbott has established an impressive record in terms of dividend performance, which is a testament to its financial health and commitment to shareholder returns.

1. Decades of Dividend Increases: Remarkably, Abbott has raised its dividends for 52 consecutive years, making it a distinguished member of the Dividend Aristocrat Index.
2. Recent Dividend Performance: In the latest fiscal year, Abbott increased its quarterly dividend to 55 cents per share, marking a 7.8% increase from the previous year, showcasing its ongoing commitment to growing shareholder value. Over the last five years, Abbot has grown it’s dividend an average of 11.6% per year, easily crushing inflation. 
3. Yield and Payout Consistency: With a 5-year average dividend yield of 1.6% and and current dividend yield (TTM) of 2.01%, Abbott has managed to provide investors with a steady and reliable income stream, adapting its payouts in alignment with business growth and financial health. The company paid a dividend of $.88 in 2015. By 2023, that dividend had grown to an impressive $2.04. 

Drivers for Future Dividend Growth

Looking forward, several factors stand poised to drive Abbott’s dividend growth, reinforcing its attractiveness as a solid dividend-paying stock.

1. Strong Financial Performance: Abbott’s consistent ability to grow its earnings per share, which has seen an impressive annual growth rate of 21.3% over the past three years, lays a solid foundation for future dividend increases. In addition, the company’s 5-year EBITDA growth rate is a promising 26.1% surpassing 74% of its competitors.
2. Innovative Product Pipeline: The company’s significant investments in research and development, that accounts for 6.6% of its revenue, have yielded breakthroughs, particularly in medical equipment with a forecasted earnings growth of 16.4% per annum. Such innovation not only drives revenue growth but also, in turn, supports stronger dividends.
3. Expanding Global Presence: Abbott’s strategic focus on expanding into emerging markets is likely to enhance its revenue streams and provide new opportunities for growth. This global reach not only diversifies risk but also supplements the company’s capacity to increase its dividends. Even in emerging markets, people are living longer and longer, which should fuel demand for medical goods for decades to come. 
4. Robust Sector Dynamics: The healthcare sector’s resilience and steady demand, amplified by malnutrition, an aging global population and increasing health awareness, provide a stable backdrop for Abbott’s business activities and dividend prospects. 10,000 Americans per day get Medicare cards, which ensures endless demand for medical products. 

Calculating Forward-Looking Indicators

To gauge the future trajectory of Abbott’s dividends, it is crucial to consider predictive indicators that mirror its potential for sustained growth.

1. Compound Annual Growth Rate (CAGR): For last five years, Abbott cumulatively compounded the quarterly dividend per share (DPS) by 71.9% while maintaining a prudent 11.4% CAGR. This disciplined approach ensures that dividends are not only sustainable but poised for growth.
2. Sustainability and Environmental Focus: As global emphasis on sustainability grows, Abbott’s commitment to reducing its environmental impact, making access and affordability core to new product innovation and improving lives aligns it with future industry standards and consumer expectations, potentially boosting its market share and financial performance.
3. A Fair PE: All that growth does not come cheap. With a current Price to Earnings ratio of 32, Abbott is fully valued. However, as Warren Buffet always says, “Better to buy a great company at a fair price, than a fair company at a great price.”  In addition, the company’s forward P/E, which values the company’s current value against expected future earnings, is only 20. Bottom line? If the company can successfully execute its growth plans, today’s share price will look cheap one day.

Conclusion

Abbott Laboratories exemplifies a compelling investment narrative, distinguished by a solid track record of dividend growth and supported by multiple catalysts poised to drive future growth. For investors focused on reliable and growing dividends within the healthcare sector, Abbott presents a promising opportunity, underscored by its strategic initiatives, solid financial health, and sustained commitment to delivering shareholder value. As Abbott continues to navigate the complexities of the global healthcare market, its potential for dividend growth appears not merely promising but well-planned and executable.