There is little doubt that medical device maker Abbott Laboratories (ABT -0.79%) is a safe, stable investment that you can hold on to for many years. The company has increased its dividend payments for 49 years in a row, and it has solid financials. But could this stock make you a millionaire?
Below, I'll look at how Abbott has performed in recent years and map out how this top healthcare stock might do in the future.
A fantastic 2020, with more growth on the way
Abbott Labs has been a consistently profitable company, which is one reason why it makes for a great investment. Even in a volatile year like 2020 where the coronavirus pandemic crippled many businesses, Abbott generated strong revenue growth of 8.5% to $34.6 billion. A big part of that growth came from its medical testing business. When Abbott released its fourth-quarter results on Jan. 27, its sales of $10.7 billion were up by 28.7% year over year and included $2.4 billion in revenue from COVID-19 related testing. With the company's $5 BinaxNOW antigen test, people can determine within 15 minutes if they have COVID-19. It's one of many tests Abbott has available today, and in Q4 alone the company delivered more than 300 million COVID-19 diagnostic tests.
Once the coronavirus becomes less of a pressing concern for the world, it's possible that Abbott's testing revenues may slide. But the loss of COVID-19 test sales sould be offset, at least partially, by rising medical device sales. Revenue from that segment dipped 3.8% in 2020 as the pandemic swamped the healthcare system, causing hospitals to defer many procedures in an effort to conserve their resources.
The great thing about Abbott is that its business is diverse. While its diagnostics segment played a big role in 2020 and delivered 40.6% sales growth, it still accounted for only 31.2% of the company's total revenue. Medical device sales of $11.8 billion continue to make up the bulk of Abbott's top line. It also generated $7.6 billion from nutrition sales and $4.3 billion from pharmaceuticals.
And so while you may be concerned about the company's post-pandemic future, Abbott Labs is well-positioned to adapt to whatever changes may come, as it demonstrated in 2020.
What is most exciting is that Abbott has been banking a large share of those added sales as profit. In 2020, its earnings of $4.5 billion amounted to 13% of revenue; in the previous year, its profit margin was 11.6%. And in 2018, just 7.7% of its revenue flowed down to the bottom line. If Abbott Labs can continue generating these strong margins, it will only become a better investment to hang on to.
For 2021, the company projects that its diluted earnings per share from continuing operations will increase by at least 50%, from $2.49 this past year to $3.74.
What have these numbers meant for Abbott's stock price?
Over the past year, Abbott's stock has generated total returns (including dividends) of 47%, slightly less than the S&P 500's returns of 49%. However, over a five-year period, Abbott has well outperformed the index.
Abbott is one payout boost away from becoming a Dividend King, and reliable dividends can make a big difference in investors' returns over the years. Its current yield of 1.5% is about in line with the payout you might expect from the average stock on the S&P 500.
Let's widen our gaze and consider how Abbott's stock has done in the past decade:
What the chart above shows us is that to build up a million-dollar stake in Abbott over the past 10 years, you would have needed to start with an investment of more than $145,000. For most people, that would be an unreasonable (or impossible) amount of money to dedicate to a single stock position.
Could Abbott Labs stock be a millionaire-maker from here?
In 10 years, Abbott has averaged an annual return of approximately 21.3%. For the sake of being conservative, let's assume the stock will average an annualized total return of 15% for the foreseeable future.
Here is a look at how long it might take you to reach $1 million if you were to invest the following amounts in Abbott's stock, assuming that 15% annualized rate of return were to hold up over the long term (which is by no means a guarantee):
|Initial Investment||Years to Hold||Future Balance|
Yes, investing in Abbott could make you a millionaire -- but as with nearly any investment, getting there would require a lot of patience.
The company has been a great stock to hold over the years, and while the future of the pandemic is uncertain, a significant level of COVID-19 testing is likely to remain necessary for at least the near future. Therefore, it wouldn't be surprising if, in the short term, Abbott continues to generate even better returns than the 21% gains it has averaged over the past 10 years. If you are looking for a safe stock to buy and hold, Abbott could be a great option to add to your portfolio.