Dividend growth investing is among the most common investing strategies around, and for good reason: Buying quality businesses and dividend growth stocks often go hand in hand. This is because a company is only able to raise its dividend for decades if its profits are also growing.

With at least 50 consecutive years of payout growth, Dividend Kings are the most reliable dividend growers in the investment universe. Abbott Laboratories (ABT 1.96%) has delivered 51 consecutive years of dividend growth to its shareholders. But is the stock a buy for income investors? Let's dive into Abbott's fundamentals and valuation to decide. 

Adapting to plunging COVID-19 test demand

With 115,000 employees in over 160 countries, Abbott Laboratories maintains a truly global presence as a diversified healthcare company. The company's products enjoy market-leading positions in huge categories such as stents, continuous glucose monitoring (via its FreeStyle Libre franchise), and diagnostics (COVID-19 testing and infectious disease testing). This explains how Abbott boasts a $191 billion market capitalization, which makes it the largest medical device maker on the planet. 

Abbott's total net sales dipped 18.1% over the year-ago period to $9.7 billion during the first quarter, which ended March 31. But these results aren't as bad as they look: The precipitous drop in demand for COVID-19 testing in recent months led the company's diagnostics segment revenue to be nearly cut in half (down 48.9%) in the quarter. But when factoring out COVID-19 testing sales and unfavorable foreign currency exchange for the quarter, Abbott's organic sales (nutrition, non-COVID diagnostics, established pharmaceuticals, and medical devices segments) were up 10%.

The Illinois-based company's non-GAAP (adjusted) diluted earnings per share fell 40.5% year over year to $1.03 during the first quarter. Because Abbott's total operating expenses only declined at about half the rate of its net sales, its non-GAAP net margin contracted by nearly 730 basis points to 18.6% in the quarter. This drastic reduction in profitability couldn't be offset by a lower share count stemming from Abbott's share buyback program. As a result, the company's adjusted diluted EPS plunged at twice the rate of its net sales for the quarter. 

Abbott is focused on winning more market share with FreeStyle Libre and launching new products. And that's why despite the near-term headwinds from diminishing COVID-19 test volumes, the company's long-term fundamentals are arguably intact.

Surgeons work in the operating room.

Image source: Getty Images.

The payout can keep moving higher

Abbott's 1.9% dividend yield is higher than the S&P 500 index's 1.7% yield. And the cherry on top is that high-single-digit annual dividend growth could continue over the long run. 

The company's dividend payout ratio is expected to come in around 46% in 2023. This modest payout ratio gives Abbott flexibility to raise its dividend moderately ahead of its earnings growth in the near term as growth is uninspiring. Not to mention that the company can return to more conservative dividend growth when it returns to double-digit adjusted diluted EPS growth, as is expected as soon as 2025. 

A solid long-term buy

After months of lackluster performance amid concerns of waning COVID-19 test revenue, shares of Abbott have surged 16% in just the last month. The market is finally realizing that the company is so much more than just COVID-19 testing.

Best of all, Abbott's valuation still seems to be within reason, all things considered. The stock's forward price-to-earnings (P/E) ratio of 23.1 is less than the medical devices industry average forward P/E ratio of 27.6. That's why I believe that Abbott remains a buy for investors seeking a relatively safe and growing payout.