1 healthcare dividend giant to bank on now
When the stock market is showing signs of volatility, it’s never a bad thing to have trustworthy companies that you can rely on to provide additional liquidity in your account, whether their stock prices go up or down.
The companies that can do this for you are the dividend paying companies. Dividend paying companies come in all sizes, but they are often large established companies with growing profits. A company that steadily increases its annual dividend for at least 25 years is part of a unique group called Dividend Aristocrats. Abbott Laboratories (NYSE: ABT) is a distinguished member of this group, having increased its annual dividend for 49 consecutive years.
A dividend aristocrat
In December 2020, Abbott Labs announced a 25% increase in its dividend to $ 0.45 per quarter ($ 1.80 per year). This represents a dividend yield of 1.47% at today’s prices. In comparison, this number is slightly lower than the average for healthcare companies, which have an average dividend yield of 2.28%, while the average for healthcare companies belonging to the S&P 500 – including Abbott – is 1.75%.
The trade-off is that not all of these companies have paid quarterly dividends consistently for 388 quarters – dating back to 1924! – as Abbott did, and not all of them are in the prestigious category of consecutive annual increases.
A 49th year of dividends and a recent increase could make things more optimistic for investors. However, the company faces some challenges in maintaining the uptrend in its stock price. In a June 1 press release, management announced that it was downgrading its outlook for 2021, mainly due to downward projections for COVID-19 testing. Previously forecasted revenue of over $ 6.5 billion for COVID-19 testing has been cut by a third, to just $ 4.5 billion, leading the company to revise down its earnings estimates for the entire year at an average of $ 4.40 per share compared to the previous one. said $ 5 per share, a reduction of 23%.
Along with the downward revision of estimated revenues and earnings for the full year, some analysts who follow the company have recently provided lowered price targets. Analysts Morgan stanley and Swiss credit both provided new price targets 10% lower than their previous targets of $ 140 and $ 133, respectively.
The good news
Although pricing targets have been reduced, Abbott and its analysts remain positive about the company’s potential, in part thanks to a strong product pipeline in its core business. The COVID-19 pandemic has brought an injection of income from testing, which is now starting to wane as much of the United States returns to a sense of normalcy. For Abbott, this normality is accompanied by a refocus on core business and the positive impact of recently launched products. Morgan Stanley analysts Cecilia Furlong and Barclays’ Travis Steed both agree underlying activity is on the verge of recovery, with Steed noting that the company has “one of the best pipelines in medical technology” and supports an overweighting, unchanged from the pre-price target. cuts. Meanwhile, Credit Suisse’s Matt Miksic predicts average sales growth of 8% and earnings per share growth of over 10% for 2021.
The company’s second quarter earnings report, which was released on July 22, showed growth in all four key core businesses – nutrition, diagnostics, pharmaceuticals and medical devices – resulting in 11% sales growth. unrelated to COVID-19. Management also reaffirmed its recently lowered review of adjusted diluted earnings per share for the year to $ 4.40, supported by double-digit year-over-year growth.
Now that the company has taken a step back on its projections, it is focusing on the successes of its main products. The Libre family of diabetes care products is leading the way in recent launches. Freestyle Libre is a sensor-based glucose monitoring system that, along with Libre Sense, grossed nearly $ 830 million in the first quarter. This was followed by $ 904 million in Libre sales in the second quarter, representing a 53% year-over-year growth and a sequential increase of 9%.
BinaxNOW is Abbott’s entry into the COVID-19 space for self-testing, and he will come in handy as the pandemic wears off. An example of how BinaxNOW can generate income in the future is the return to normal hours for schools and organized groups. The Department of Health and Human Services, along with the Department of Defense, will provide 150 million self-test units to schools and other strategic recipients. The state of Massachusetts will be getting more than 2 million tests to use throughout the upcoming school year for students with symptoms, as a follow-up or for home use. In the second quarter, the company recorded combined sales of $ 1 billion from its rapid test platforms, including BinaxNOW, Panbio and ID NOW.
The opportunity to buy a Dividend Aristocrat at a price lower than its expected price target is hard to ignore. History is on Abbott’s side as well, as both profits and revenue have grown over the past three years.
Even the lowered price targets are higher than the current share price; the average target is $ 128, offering investors today a current discount of around 6% based on the current share price of $ 121. If the price hits the top target of $ 136, you expect a 12% gain.
An investor who places $ 10,000 in Abbott should expect to earn an additional $ 150 per year in dividends, which will compound each year, regardless of the direction of the share price. Combined with a top price target ($ 136) that’s double the share price of just three years ago, plus a growing annual dividend and projected double-digit revenue growth, it’s easy to see how Abbott Labs might make a good investment in a volatile market.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.