Abbott Laboratories (ABT 0.80%) has a long history of serving the healthcare community with its products. For much of its history, Abbott was a true healthcare conglomerate, producing both pharmaceuticals and medical devices to serve a large patient population. With the company's spinoff of its proprietary pharmaceutical business into AbbVie (ABBV 1.42%), the continuing Abbott Labs now focuses on medical devices and generic pharmaceuticals. That focus hasn't prevented the stock from hitting new all-time record highs, but it has raised questions from time to time about whether the dividend growth that Abbott enjoyed in the past is sustainable for the more-focused company going forward. Let's take a closer look at Abbott Labs to see whether investors can be confident in its ability to keep its dividend moving higher.
Dividend stats on Abbott Labs
|
Current Quarterly Dividend Per Share |
$0.265 |
|
Current Yield |
2% |
|
Number of Consecutive Years With Dividend Increases |
45 years* |
|
Payout Ratio |
164% |
|
Last Increase |
January 2017 |
Data source: Yahoo! Finance. Last increase refers to ex-dividend date. * After accounting for AbbVie spinoff.
Dividend yield
Abbott Labs has a yield of 2%, which matches up well with the S&P 500's current average dividend yield. However, it does mark a decline from the stock's typical yield before it spun off AbbVie. Immediately before the split, Abbott's yield was consistently between 3% and 4%. Since the spinoff, yields have ranged from roughly 1.5% to 2.5%, putting the current dividend right in the middle of Abbott's typical post-spinoff level.
Image source: Abbott Labs.
Payout ratio
Abbott Labs has seen its payout ratio skyrocket recently, dramatically exceeding its more typical range of around 30% to 60%. However, the rise has been generally attributable to one-off negative impacts on its earnings, and investors fully expect the company to recover and see its earnings get back to more typical levels in the next year or two. If those expectations come to pass, then they imply a future payout ratio of 35% to 45%, and that would put Abbott back in a comfortable zone for dividend investors.
Dividend growth
Abbott Labs has put together an impressive track record of dividend growth, with 45 straight years of rising payouts after allowing for the spinoff of AbbVie. Throughout most of that history, the growth rate in Abbott's dividend has been impressive. You can see below that Abbott has changed that trend in its most recent boost, which amounted to just half a cent or less than 2%. Again, the temporary hit to earnings likely motivated the less aggressive increase, but profit recovery should help Abbott to restore healthier growth rates in 2018 and beyond.
ABT Dividend data by YCharts.
What's happened with Abbott Labs lately?
Abbott Labs has worked hard to maintain its growth in recent years, and despite headwinds in the medical device space, the company's efforts have shown substantial success. In its most recent quarter, Abbott reported a 2.9% rise in worldwide sales, with sizable gains in the diabetes, electrophysiology, neuromodulation, and structural heart focus areas. Abbott raised its full-year adjusted earnings guidance, and it believes that it has tapped into some promising opportunities that could push growth in the future.
In particular, Abbott's acquisition of St. Jude Medical has been a big advance for the company. The combination produced considerable complementary impacts on key market areas, with the combined company holding No. 1 or No. 2 positions in nearly every key cardiovascular device market. Expense savings have also been a key driver of better results. Although costs related to the merger were primarily responsible for depressed earnings -- and likely played a role in Abbott's decision to keep its dividend growth modest this year -- the promise of better gains in the future warrant the investment.
What to expect from Abbott Labs
Abbott Labs has done a good job of finding new avenues for growth in its post-spinoff business, and shareholders have reaped the rewards. Even with some warning signs in its dividend that have raised concerns, Abbott Labs appears to be doing everything it needs to in order to ensure that it will be able to keep its dividend payments safe far into the future.
