Updated on November 1st, 2024 by Felix Martinez
Abbott Laboratories (ABT) has increased its dividend for over 52 consecutive years, and as a result, it has joined the list of Dividend Kings.
The Dividend Kings are a group of just 53 stocks that have increased their dividends for at least 50 years in a row. Given this longevity, we believe the Dividend Kings are among the highest-quality dividend growth stocks to buy and hold for the long term.
With this in mind, we created a full list of all 53 Dividend Kings. You can download the full list, along with important financial metrics such as dividend yields and price-to-earnings ratios, by clicking on the link below:
Abbott is a diversified healthcare giant with a long runway of growth ahead. While the stock appears slightly overvalued, it can continue to be relied upon for annual dividend increases.
This article will discuss the company’s business overview, growth prospects, competitive advantages, and expected returns.
Business Overview
Abbott Laboratories is a healthcare stock with a market capitalization of $161 billion. Founded in 1888, it is headquartered in Lake Bluff, Illinois.
Abbott operates in four main segments: Nutritional Products, Established Pharmaceuticals, Diagnostics, and Medical Devices, and enjoys a leadership position across product segments.
Source: Investor Presentation
Abbott Laboratories reported third-quarter 2024 sales of $10.6 billion, a 4.9% increase in reported sales, and an 8.2% rise in organic sales growth, driven by strong performances in its Medical Devices sector. The company posted a GAAP diluted earnings per share (EPS) of $0.94 and an adjusted EPS of $1.21, excluding specific items. Maintaining its full-year guidance, Abbott projects organic sales growth between 9.5% and 10.0%, excluding COVID-19 testing sales, and has raised its adjusted EPS forecast to a range of $4.64 to $4.70.
Abbott continued to enhance its offerings throughout the quarter with new product approvals, reimbursement agreements and expanded clinical data. Highlights included the launch of Lingo™, a non-prescription continuous glucose monitoring system aimed at wellness-focused consumers, and a strategic partnership with Medtronic to integrate Abbott’s glucose monitoring technology with Medtronic’s insulin delivery devices. Additionally, Abbott completed enrollment in its VOLT-AF IDE trial for its Volt™ Pulsed Field Ablation System for atrial fibrillation treatment, reinforcing its commitment to advancing health technology.
Abbott’s board also authorized a $7 billion share repurchase program, signaling confidence in the company’s growth trajectory. The company reported continued growth in key markets, particularly within its Established Pharmaceuticals and Medical Devices segments, with products like FreeStyle Libre® and AVEIR® contributing to robust sales. CEO Robert B. Ford emphasized that these results showcase the strength of Abbott’s diversified portfolio and position it to achieve the upper end of its 2024 financial guidance, setting a strong foundation for continued momentum into 2025.
Growth Prospects
Looking ahead, Abbott Laboratories has two major growth prospects. The first is the aging population, both within the United States and internationally. In 2019, 9.1% of the global population exceeded age 65. This proportion is expected to reach 16.7% in 2050.
As people age, they tend to need more medical treatments, including many of the therapies that Abbott produces.
The company’s focus on emerging markets is the second broad tailwind that will benefit Abbott Laboratories. This is particularly true for its Branded Generic Pharmaceuticals segment.
Source: Investor Presentation
Abbott has a strong position in growth markets such as diagnostics. It is the market leader in point–of–care diagnostics and cardiovascular medical devices.
Lastly, share repurchases, which Abbott spends billions of dollars on annually, will boost earnings per share.
As a result, Abbott should be able to generate attractive long–term growth rates for both earnings–per–share and dividends. Overall, we expect 5% annual earnings-per-share growth for Abbott over the next five years.
Competitive Advantages & Recession Performance
Abbott Laboratories’ first competitive advantage is its brand recognition among its consumer medical products, particularly in its Nutrition segment.
Abbott Laboratories brands, led by noteworthy products like the Ensure meal replacement supplement, allows its sales to stand strong through even the worst economic recessions.
Abbott’s second competitive advantage component is its focus on research and development. The company’s R&D expense over the last five years is shown below:
- 2018 research & development expense: $2.3 billion
- 2019 research & development expense: $2.4 billion
- 2020 research & development expense: $2.4 billion
- 2021 research & development expense: $2.7 billion
- 2022 research & development expense: $2.8 billion
Abbott Laboratories’ investment in research & development shows that the company is willing to play the long game, building out its product pipeline and improving its long-term business growth prospects.
As a large, diversified healthcare business, Abbott Laboratories is extraordinarily recession-resistant. The company actually increased its adjusted earnings-per-share during each year of the 2007-2009 financial crisis.
- 2007 earnings-per-share of $2.84
- 2008 earnings-per-share of $3.03 (6.7% increase)
- 2009 earnings-per-share of $3.72 (22.8% increase)
- 2010 earnings-per-share of $4.17 (12.1% increase)
As you can see, Abbott actually grew its earnings-per-share each year during the Great Recession.
We expect this recession-resistant Dividend King to perform similarly well during future downturns in the business environment.
From a dividend perspective, Abbott’s dividend also appears very safe. The company has a projected dividend payout ratio of 46% for 2023. Abbott has raised its dividend for 51 consecutive years, and has paid dividends to shareholders for nearly 100 consecutive years.
Valuation & Expected Total Returns
Based on an expected EPS of $4.67 for 2024, Abbott stock has a price-to-earnings ratio of 24.2. This valuation is noticeably higher than its long-term average.
Our fair value price-to-earnings ratio is 22, meaning the stock appears to be slightly overvalued. A declining P/E multiple could reduce annual returns by 2% over the next five years.
The other major component of Abbott Laboratories’ future total returns will be the company’s earnings-per-share growth. We expect 7% annual EPS growth for the company.
Lastly, Abbott’s total returns will be boosted by the company’s dividend payments. Shares currently yield 1.9%.
Overall, Abbott Laboratories’ expected total returns could be composed of:
- 7% earnings-per-share growth
- 1.9% dividend yield
- -2% multiple reversion
Total expected annual returns are forecasted at 6.9% through 2029. Given the valuation decline, we now rate Abbott a hold.
Final Thoughts
Abbott Laboratories has a long history of growing its profits and dividends, thanks to its strong brand portfolio. While the company’s current valuation fractionally exceeds its long-term average, Abbott Laboratories remains a hold.
If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
- The Dividend Aristocrats List: S&P 500 stocks with 25+ years of dividend increases.
- The Blue Chip Stocks List: contains stocks on either the Dividend Achievers, Dividend Aristocrats, or Dividend Kings list.
- The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
- The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: