There are significant advantages to holding shares of companies for a long time as opposed to, say, day trading. The buy-and-hold approach is simpler, doesn't leave investors at the mercy of short-term and often irrational market sentiment, limits fees and taxes, and (especially when dividends are reinvested) puts the magic of compounding to work.
That being said, even among dividend stocks, many aren't worth sticking with for the long term. Let's consider one dividend payer that is: Abbott Laboratories (ABT -5.07%). This healthcare leader has the qualities of a forever stock. Let me explain.
Abbott's business might bend, but it won't break
Most companies don't stay in business for decades. Sometimes, even entire industries become obsolete due to technological advances. The latter is unlikely to happen in the healthcare sector, where Abbott Laboratories is a leading player. The demand for medical services should remain on the rise for a slew of reasons, particularly an aging population. Medicine's progress in helping us live longer and healthier lives has led to a growing need for further advancements.
That's excellent news for the sector, but it doesn't guarantee Abbott Laboratories' success. Why is the company worth sticking with forever? Here are three reasons.
Image source: Getty Images.
First, Abbott Labs is one of the most well-established companies in its medical device specialty, and has developed dozens of products that physicians routinely use. It has built a strong reputation and relationships with doctors, which grant it a significant advantage.
Second, Abbott has an excellent innovative streak -- that's the key to keeping pace with the changing demands of the sector. Some of the company's products are among the industry leaders in their niches. Its MitraClip is one of the top products used to fix mitral valve regurgitation, having pioneered the use of minimally invasive approaches in this area. The family of Amplatzer Occluder devices helped raise the standard for the minimally invasive treatment of abnormal openings in the heart.
Abbott's FreeStyle Libre franchise, a family of continuous glucose monitoring (CGM) systems, is also among the leaders in its area; it helped pioneer the innovative CGM approach, which shows clinical benefits over traditional blood glucose meters. The FreeStyle Libre has become the most successful medical device in history in terms of dollar sales, highlighting how Abbott's breakthroughs support its ability to generate strong financial results.
What's more, the FreeStyle Libre franchise still has a massive growth runway ahead. As Abbott has pointed out, the CGM market is severely underpenetrated, as only about 1% of diabetes patients worldwide have access to CGM technology. That's why the company's diabetes care segment has been one of its major growth drivers in recent years, and this trend should continue for a while.
Third, Abbott's overall business is diversified. While it's best known for its work in medical devices, the company also has segments in branded generic pharmaceuticals, diagnostics, and nutrition. This diversity can allow it to navigate challenges in any particular business unit. It's also worth pointing out that Abbott's nutrition brands include famous ones like Ensure and Similac.
So, Abbott markets products that remain in high demand regardless of economic conditions. It constantly innovates, has deep footprints in the industry, and has several growth avenues. The stock might experience a downturn, but should survive even the worst and continue performing well long afterward.
Abbott boasts an impressive dividend track record
Given the strength of Abbott's business, it's not surprising that it has such an excellent dividend program. It joined the elite group of Dividend Kings, companies that have raised their payouts for at least 50 consecutive years, just a few years ago; the medical device giant has now had 53 straight years of dividend hikes, and there's no end in sight. Its cash payout ratio is about 60.4%, which is still reasonable and grants plenty more room to grow the dividend further.
Abbott Laboratories should provide excellent long-term returns, especially for shareholders who reinvest the dividend.
