Why Abbott Is More Than a Dividend Stock
The medical device and pharmaceutical company has a diverse revenue stream that makes its dividend just an added bonus.
In February, the company increased its quarterly dividend by 10% to $0.44 per share, marking the 38th consecutive year that the company has increased its dividend payout. It has a yield of 3.57% and currently trades at about $50 per share. The stock is included on Standard & Poor's 500 Dividend Aristocrats list, which measures the performance of stocks that have increased their dividends consistently over the last 25 years. The company has almost doubled its dividend every six years. Yet, Abbott has much more to offer investors beyond a consistent payout.
With the health-care climate changing drastically, it's important to look at companies that have a good chunk of change in the bank, as well as products that are going to be dependably bringing in revenues over the coming years. Abbott has both of those things.
"Abbott Laboratories' wide moat, large size, noncyclicality, and high levels of cash make the company highly solvent, and minimize the risk of default," says Morningstar analyst Damien Conover.
As of June, the medtech/pharmaceutical company had about $6.2 billion in cash and short-term investments on its books, and unlike most of its Big Pharma peers, Abbott isn't facing any sort of major patent cliff in the next few years that would make it susceptible to generic competition. Rob McIver, co-portfolio manager of the $2.7 billion Jensen Fund (JENSX), told Minyanville in May that he likes Abbott because of its strong return on equity. "Last year, the company bought a European pharmaceutical business for $6 billion. It just wrote a check for it. It had the cash on its balance sheet. That is a fantastic testament to the strength of Abbott," he said. (See what else McIver had to say in Hunting for Companies With Opportunities Overseas.)
Abbott's strongest feature is that it's highly diversified -- the company sells everything from pharmaceuticals to medical devices to nutritional products -- allowing it to have a very wide customer base that can withstand some volatility in the macro economy. The company's two strongest products are its rheumatoid arthritis drug Humira and its drug-eluting stent Xience, a small medical device used to prop open arteries. As of the end of the second quarter, Xience had more than 30% of the market share for the worldwide stent market (competing with companies like Johnson & Johnson (JNJ) and Boston Scientific (BSX).) Meanwhile, Humira has sales of $1.6 billion in the second quarter.
Helping to further insulate Abbott from any sort of severe market volatility is its expansive international business. During the second quarter, more than half of its $4.9 billion in pharmaceutical sales came from outside of the US, while international sales for its diagnostic tools were more than double domestic sales.
Abbott Chief Executive Miles White told Investors Business Daily earlier in the month that diversity is key to the company's success. "In a world where you have to balance quarterly performance with long-term R&D that can be anywhere from four to 12 years, depending on whether you're in devices or diagnostics or pharmaceuticals, diversity is a lot better for us. That's how we manage sustainable, stable returns investors seem to look for and expect, while protecting those long-term investments in R&D."
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