Abbott Can Help Build Wealth Amidst a Low Dividend Yield

ABT - Abbott Laboratories

Abbott Laboratories is a leading healthcare and research company having a presence in more than 150 countries worldwide. Over 14 million people around the world use Abbott’s medicines every day. With over 130 years in business, Abbott has become the worldwide leader in adult nutrition and blood screening. It enjoys a leadership position in virtually every market it serves.

Abbott owns a leading portfolio of innovative solutions in diabetes, cardiovascular, and neuromodulation. The company commands a large market share position in diabetic care and cardiovascular disease treatments in the developed markets.

Abbott derives nearly 60% of its revenue from developed markets and 40% from emerging markets. It is a leading pharmaceutical company in India, Russia, and across Latin America – with #1 positions in Chile, Colombia, and Peru.

Abbott has four reportable segments – Established Pharmaceuticals (15% of 2018 sales), Nutritionals (25%), Diagnostics (26%), and Cardiovascular and Neuromodulation (33%) and other. Its portfolio consists of more than 1500 products across multiple therapeutic areas. The strategic acquisitions of St. Jude Medical and Alere have further bolstered Abbott’s leadership position across the spectrum of cardiac-care specialties, neuromodulation, and point-of-care diagnostic testing. Abbott is the world’s leading company in glucose testing for diabetes.

Investment Data

Revenue Growth & Market Exposure

Abbott is trusted worldwide for its quality products and innovative medicines. Some of its popular brands include Similac, FreeStyle, Brufen, Alinity and PediaSure. The company enjoys a leadership position across multiple dimensions of the healthcare business. FreeStyle Libre, Abbott’s glucose-monitoring system has become a billion dollar product. Abbott holds leading market share in coronary stents, transcatheter mitral valve repair, left ventricular assist devices, spinal cord stimulation, branded generic medicines, adult nutrition, etc.

Abbott has a strong focus on emerging economies with about 40% of its revenues come from these markets. The company is in a good position to benefit from the improving lifestyles and rising demand for healthcare in these markets. Decades of experience in key international markets offer deep local roots to the company. Abbott has demonstrated strong performance across all its business segments in the most recent quarter.

Abbott is an innovative company. The company has been at the forefront of innovation, developing the ground-breaking glucose sensing technology, innovative devices for chronic pain and novel diagnostics solutions. More than 50% of its sales are derived from products and businesses that are new to the company, in just the last six years. Abbott is using technology and offering patients an intuitive therapy experience through its Infinity and Proclaim platforms.

Abbott’s leading position in diabetic care and cardiovascular disease treatments provide it solid ground to gain from the rising trend of rising heart ailments and diabetic diseases in the developed markets. The company’s impeccable reputation, complementary portfolio of businesses and a strong presence in the world’s largest and fastest growing markets provide a deep competitive moat to its business. Abbott is targeting organic sales growth of 7%-8% for FY19.

Dividends

Since 1973, Abbott has been increasing its dividends every consecutive year making it a member of the S&P 500 Dividend Aristocrats Index. The company has paid dividends for 95 years in a row and raised it for 47 consecutive years. The company’s commitment to its shareholders can be gauged by the fact that its total 5-year shareholder return stood at more than 100%. Abbott returned $2 billion to shareholders last year.

The average dividend per share growth was nearly 15% CAGR per year over the last five years and Abbott recently raised its dividend by more than 14%. It has an average dividend yield of 1.5% and a high payout ratio of 78%. Abbott is targeting double-digit growth in EPS for FY19. The company should comfortably maintain a low-mid double-digit dividend growth rate in the future.

Abbott is in a good position to gain from its acquisitions. Its St. Jude Medical acquisition in 2017 has created a medical device leader with #1 or #2 positions in most high growth cardiovascular markets.

Abbott is highly diversified by business mix, regions and customers which helps it to remain immune from volatility in any particular market/ segment. The company operates in a highly recession-proof industry. It engages in creating life-changing technologies that help people live longer and healthier lives. With over 130 years of innovative work, Abbott today has built one of the strongest new-product pipelines in the medical device industry. It is almost impossible for any new player to replicate Abbott’s scale and trust. Huge patent and license portfolio and strong regulations are other entry barriers.

Diabetic care and cardiovascular diseases have gradually become more common in both developed and emerging markets and are expected to increase further with rising levels of obesity and an aging population. Abbott will benefit from its strong brand recall and growing healthcare needs worldwide.

Competition

Abbott competes with the likes of Johnson & Johnson, AbbVie, Becton, Dickinson & Co, and Cardinal Health Inc. Johnson & Johnson is one of the biggest healthcare companies having an extensive global presence, while AbbVie is a leading global biopharmaceutical company engaging in the R&D of therapies for some of the most serious human diseases. Becton, Dickinson & Co is a leading global medical technology company and Cardinal Health is a global, integrated healthcare services and products company.

Bottom Line

Abbott is well positioned in markets where healthcare needs are growing fast. The company is constantly engaged in developing products and solutions meeting the challenges and environments that impact the health of people in each market. Leading market share in critical healthcare areas, worldwide presence, large scale, and distribution are Abbott’s key competitive advantages. Abbott is a shareholder friendly company and should continue its dividend growth streak at the same pace in the future as well.

Be aware that Abbott is not the high dividend payer it used to be. AbbVie, from the spinoff, is where the dividend went since it has a much higher yield. Since the spinoff, Abbott has maintain a dividend yield around 2.0% or lower.

ABT vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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