When the stock market shows signs of volatility, it's never a bad thing to have trustworthy companies that you can count on to provide extra cash in your account -- regardless of whether their stocks' price is going up or down.

The companies that can do that for you are those that pay dividends. Dividend-paying companies come in all sizes, but they are often larger, established businesses with growing profits. A company that grows its annual dividend consistently for at least 25 years is in a unique group called Dividend Aristocrats. Abbott Laboratories (ABT -0.74%) is a distinguished member of this group, having raised its annual dividend for 49 consecutive years. 

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A Dividend Aristocrat

In December 2020, Abbott Labs announced a 25% increase in its dividend to $0.45 per quarter ($1.80 annually). This represents a 1.47% dividend yield at today's prices. By comparison, this number is slightly lower than the average for companies in the healthcare sector, which have an average 2.28% dividend yield, while the average of healthcare companies belonging to the S&P 500 -- including Abbott -- is 1.75%.

The trade-off is that not all of those companies have paid quarterly dividends consistently for 388 quarters -- dating back to 1924! -- like Abbott has, and not all of them are in the prestigious category for consecutive annual increases.

Royal challenges

A 49th year of dividends and a recent increase might make things look rosy for investors. However, the company does face some challenges in keeping its stock price trending upward. In a press release on June 1, management announced they were revising their 2021 outlook downward, due primarily to lowered projections for COVID-19 tests. The previously projected revenue of more than $6.5 billion for COVID-19 testing has been cut by one-third, to only $4.5 billion, leading the company to revise full-year earnings estimates downward to an average of $4.40 per share as compared to the previously stated $5 per share, a reduction of 23%. 

Along with the downward revision in revenue and estimated full-year earnings, some analysts following the company have recently provided lowered price targets. Analysts from Morgan Stanley and Credit Suisse both provided new price targets at 10% below their previous targets of $140 and $133, respectively.

The good news

Although price targets have been cut, Abbott and its analysts remain positive on the company's potential, thanks in part to a solid pipeline of products in its foundational business. The COVID-19 pandemic brought an injection of revenue from testing, which is now starting to fade as much of the U.S. is getting back to a sense of normalcy. For Abbott, that normalcy brings with it a renewed focus on the baseline business and the positive impact coming from recently launched products. Analysts Cecilia Furlong of Morgan Stanley and Travis Steed of Barclays both agree that the underlying business is set for recovery, with Steed noting that the company has "one of the best pipelines in medical technology" support an overweight rating, unchanged from pre-price target cuts. Meanwhile, Matt Miksic at Credit Suisse expects an average of 8% sales growth and over 10% earnings-per-share growth for 2021.

The company's second-quarter earnings report, which was released July 22 , showed growth across all four key baseline businesses -- nutrition, diagnostics, pharmaceuticals, and medical devices -- resulting in 11% growth in non-COVID-19 related sales. Management also restated their recently lowered revision of full-year adjusted diluted earnings per share of $4.40, supported by double-digit growth year over year.

Now that the company has pulled back a bit on projections, it's focusing on the successes of its primary products. Leading the way for recent launches is its Libre diabetes care product family. Freestyle Libre is a sensor-based glucose monitoring system that, along with Libre Sense, brought in nearly $830 million in the first quarter. That was followed up with $904 million in Libre sales during the second quarter, representing 53% growth year over year and a 9% sequential increase.

BinaxNOW is Abbott's entry into the COVID-19 space for self-testing, and it will be useful as the pandemic fades. One example of how BinaxNOW can generate revenue going forward is through the return to normal schedules for schools and organized groups. The Department of Health and Human Services, along with the Department of Defense, will be delivering 150 million units of the self-test to schools and other strategic recipients. The state of Massachusetts will obtain over 2 million tests to use throughout the coming school year for students with symptoms, as follow-ups, or for at-home use. In the second quarter, the company experienced combined sales of $1 billion from its rapid testing platforms, including BinaxNOW, Panbio, and ID NOW.

Why buy?

The opportunity to purchase a Dividend Aristocrat at a discount to its expected price target is hard to ignore.   History is also on Abbott's side, as earnings and revenue have both grown for the past three years.

Even the lowered price targets are above the current stock price; the average target is $128, providing investors today with a current discount of approximately 6% based on the current $121 share price. If the price hits the upper target of $136, you're looking at a gain of 12%. 

An investor who puts $10,000 into Abbott should expect to gain an extra $150 per year in dividends, which will compound annually regardless of the direction of the share price. Combined with an upper price target ($136) that is double the stock price from just three years ago, plus a growing annual dividend and projected double-digit growth in revenue, it's easy to see how Abbott Labs could make for a sound investment in a volatile market.