Stock Analysis - Abbott Laboratories (NYSE:ABT)
2 June 2007We struck gold with our first stock analysis of Johnson and Johnson. Next up, is Abbott Laboratories (NYSE:ABT) and another member of the S&P 500 Dividend Aristocrats.
Company Profile:
From Yahoo Finance
Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products.
Like JNJ, this is just a small excerpt from the whole company profile at Yahoo Finance.
Abbott Laboratories is another large cap stock with a market capitalization of $86B.
Company Fundamentals:
Let’s have a look at the company fundamentals to see the financial health of this company.
The Return on Equity (ROE) is absolutely phenomenal. Management has produced a 10 year ROE of 31.09% and a 5 year ROE of 27.13%. The last year is sitting right around the 5 year average at 27.13%. Absolutely fantastic.
Looking at the book value growth rate, the numbers are disappointing. There is not much consistency at all. And the trend has definitely been downhill. In fact, in 2006, the book value shrunk by 2.38%.
Earnings per share growth rate has been historically quite low - less than 10%. Not very awe inspiring.
And sales growth rate is not eye popping either. In fact, it is pretty disappointing. Two of the last 3 years are less than 1% sales growth.
Although management has done a super job with their ROE, the rest of their numbers are not investor friendly.
Dividend Fundamentals:
Current yield is sitting at 2.29%. That is comparable with the Dow Jones 30 Index which sits at 2.26%.
Looking at the dividend growth rate for the last 10 years, we see that the company was able to consistently increase dividends. However, you can see that the increases have been dwindling down each year. Definitely not a good sign for an investor hoping for double digit dividend growth.
ABT has consistently grown their cash flows in order to pay for these dividends, but these are also in the single digit range and the historical average is also under 10%.
Historical Dividend Yield
Looking at the last 10 years of data, the average high dividend yield is 2.52%. However, that is lower than each of the last 5 years high dividend yield. If I just look at the last 5 years, then the average high dividend yield is 2.89%.
The dividend payout ratio has hovered right around 45% the whole time which is not too aggressive.
Calculating the price that I would pay for this stock, I decided to increase my dividend yield to an even 3% to make up for the lack of fundamentals that we saw earlier. That means that I should be willing to pay $43.33. At today’s price of $56.65, that would be a premium of 30.73%.
Here are my calculations.
Conclusion:
Although ABT has been able to increase their dividends over the last 25 years, their fundamentals seem to have been slipping steadily. And even setting that aside, this stock is definitely selling at a premium. Personally, I would pass on this stock. But if you like it, I would definitely wait for a pullback.
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on June 2nd, 2007 at 2:46 pm
Your link to the JNJ post is busted dude …
on June 2nd, 2007 at 7:45 pm
Thanks for the heads up.