Despite its formidable market capitalization of $174 billion and more than 100 years in operation, Abbott Laboratories (ABT +0.32%) is a stock that can sometimes be overlooked. It doesn't make headlines despite being one of the world's most important developers and suppliers of medical products, and its appeal to investors may be somewhat limited as its shares won't ever be as dynamic as those of a popular growth company like Tesla.
Nonetheless, this stock has a lot to offer, especially if you're in the market for something on the safer side. Let's dig in and see why that's the case.
NYSE: ABT
Key Data Points
Knowing how to keep shareholders happy
There aren't many businesses like Abbott Labs. It makes all manner of healthcare goods, ranging from the critical (like clinical instruments for analyzing people's blood) to the more trivial (like its Ensure protein shakes for adults). It's also one of the largest conglomerates in the world, with a top line of nearly $44 billion in 2022, up by 122% from 2012.
With such a massive and diversified set of segments, it has a plethora of different avenues for chasing growth, not to mention more than enough diversification of revenue sources to protect it from all but the most severe economic downturns. This year alone it scored Food and Drug Administration (FDA) approval for a pacemaker, a hematology instrument, a cardiac monitor, and an ablation catheter for treating abnormal heart rhythms, to name just a few of its growth drivers for the rest of 2023 and beyond.
And with a research and development (R&D) budget of nearly $3 billion last year, it's sure to continue churning out new products, too, especially in its diabetes care segment, which has been especially active since the recent launch of its latest glucose monitor.
With trailing 12-month free cash flow (FCF) of approximately $8 billion, Abbott also has plenty of leeway to return capital to investors, while planting seedlings for future growth. While its dividend only yields 2%, investors can rest assured that the company is good for the money. For the last 398 quarters -- that's nearly 100 years -- its payout has arrived in shareholders' accounts without incident, and for the last 51 years and counting management opted to hike the dividend for the next year.
At the moment its payout ratio is only 67%, so there is plenty more overhead to keep increasing the dividend for the foreseeable future. And for those seeking a stable dividend-paying stock, it's hard to get a better endorsement than this stellar track record.
Good things come to those who wait
The catch with Abbott Laboratories is that it isn't a growth stock per se. As favorable as the constant increases to its dividend are, the company simply doesn't grow its earnings or sales that much in any given year. What's more, right now it's actually facing a headwind to its revenue as sales of its coronavirus diagnostic tests, formerly a big earner, are now eroding rapidly.
Its large base of revenue also means that it's difficult for any single one of its new products to make a significant dent in proportion to the size of the whole. In other words, you should not expect this stock to ever double overnight, or even in the next five years. So if you're looking for a medium-term or shorter-term pick to take advantage of specific trends, this isn't the right option.
But if you can handle holding it for the long haul, the slow accumulation of larger dividend payments and the inexorable onward march of its earnings over time can make it a great investment, and it beat the market over the 10-year period looking back. Abbott Laboratories will definitely be around for a very long time, and it has a great history of rewarding its shareholders at every step along the way.
If you think you have the patience to wait for its expansion to add up, it's worth buying. But if you want a lot of passive income for your buck this year, or sharp equity appreciation, it's best to look elsewhere.
