Dividend Increase: Abbott Labs (ABT)

Abbott Labs is a large diversified manufactured of health, pharmaceutical, and medical devices included such brands a Pediasure, EAS,  Similac, Ibuprofen.  ABT has announced their 2017 dividend increase of just $0.005, bringing the quarterly dividend to $0.265 from $0.26.  This represents a 1.92% increase for the year and is also the weakest increase in the dividend since ABT spun off ABBV back in 2013.

This increase falls well short of my $0.02 expected increase.  Suffice it to say this year is a disappointment from ABT, both in terms of stock performance and dividend growth.  I suspect the company will probably announce some layoffs for cost savings.

The miniscule dividend increase brings the streak of continuous increases to 45 years straight, and the continuous dividend payment streak stands at 93 years.

The current dividend yield on ABT sits at 2.77%.

ABT Dividend History:

I want to take a look at the ABT dividend a few ways, since there was the spinoff of ABBV back in 2013.

This first chart shows the ABT dividend history from 2005-2017, adjusted for the spinoff of ABBV.  When you look at the change in the dividend from 2012 to 2013, this was not a decrease that occurred.  Shareholders of ABT received shares in ABBV as a result of the spin off, and ABBV paid a dividend.  So you got a little increase in your dividend income as a result of the spinoff, just between 2 companies.  So yes, ABT has a 45 year dividend increase streak and I’ll show you that in a moment.  To calculate the average growth on the dividend, I show a couple of different ways of calculating those figures.  You’ll largely want to ignore those figures, since the spinoff adds some complications.  This chart is useful for looking at the average growth on the dividend of ABT from 2005-2012

Lets look at what happened in 2013, when ABBV was spun off from ABT.

The above chart shows what happened to the ABT dividend in 2013, a large portion of the dividend payment fell under ABBV.

To make your life simple, I took the time to combine the data of ABT and ABBV.

The above chart combines the dividends of both ABT and ABBV, as if the spinoff never occurred in 2013.  For someone that was a long term shareholder of ABT, and kept their shares of ABBV, I think this represents the best true growth in the dividend of ABT.  Here you see that average growth of the quarterly dividend from 2005-2017 is 10.50% (arithmetic) and the annual payout amount sits at 10.61%.  Your dividend income during that 12 year time frame has grown a total of 233% or a little more than tripled.  Not bad.

ABT vs S&P500

I won’t lie, the last year as an ABT shareholder has been disappointing to say the least.  However, the last decade ABT has matched the S&P500 performance, while giving shareholders a better dividend yield and better dividend growth.

ABT Key Data:

Market Cap: $57Billion

Beta: 1.48

PE Ratio: 25.78

Dividend Yield: 2.77%

Payout Ratio: 154.55%

Profit Margin: 6.61%

Total Cash: $4.51Billion

Total Debt: $8.51Billion

The payout ratio is scary.  However I firmly believe ABT will cut cost and won’t be surprised to hear about layoffs.  This company protects the dividend at any cost.  Also the 4.51 Billion in cash and the company’s free cash flow provide adequate safety margin on the dividend.

Conclusion

Despite the disappointing year for ABT, I actually think the current price is a buying opportunity to get in on a company with a strong dividend history.  Am I worried about the dividend? No, they’ll have a bunch of layoffs to keep the dividend streak going if they need to, as they work to grow earnings. For 2018, I expect ABT to provide an increase of $0.01 per share to the dividend.

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