Dividend Investor Portfolio #7: Fruitful Devices
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Dear Investor,
Welcome to the 7th edition of TipRanks’ Dividend Investor Portfolio & Newsletter.
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Market-Moving News: May 6, 2024
Stock markets were again in a rollercoaster mode, but the strong surge at the end of the week pulled them to a second consecutive weekly win, alleviating much of the losses made in the previous three weeks.
Investor anxiety was palpable ahead of the Fed meeting on Wednesday, swinging in opposite directions. While the Fed Chair Jerome Powell did move from “when” to “if” about the prospect of the rate cuts this year, he strongly pushed back against the possibility of a rate hike. With the “higher for longer” doctrine having already sunk in, markets breathed a sigh of relief upon hearing the news.
Powell also reiterated that the central bank remains data-dependent, continuing to closely follow the incoming economic reports for input into their policy decisions. So, when Friday’s labor-market report came out “just right”, showing weaker-than-expected job gains and easing wage growth, investors interpreted it as a sign that rate cuts are still on the table for 2024.
Markets were also propped up by strong earnings reports. With 80% of the S&P 500 having reported actual results for Q1 2024, 77% have exceeded EPS expectations. At the moment, the blended results (actual and estimated results combined) stand at a 5% earnings growth year-on-year. If this rate is sustained through the remaining reports, this would mark the fastest earnings growth since Q2 2022.
However, we are nearing the end of the reporting season, and the focus will shift back to the Fed and the economic reports feeding its policy-decision models. With so much at stake, markets are expected to react strongly to important data releases, paving the way for volatile trading in the months ahead.
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This Week’s Quality Dividend Stock Idea
Abbott Laboratories (ABT) is an American multinational company which develops and markets medical devices, diagnostics, branded generic medicines, and nutritional products.
The company, established in 1894 and publicly traded since 1929, was behind many medicinal breakthroughs in various fields, such as antiseptics, anesthetics, vitamins, infant nutrition, dietary nutrition, and more. Since the 1970s, the company has entered the diagnostics field, pioneering several advanced tests, including the world’s first licensed test to identify the HIV virus.
In 2013, Abbott’s research-based pharmaceuticals business was spun off and began publicly trading as AbbVie Inc. The remaining business lines – medical devices, generic drugs sold internationally, and diagnostics – retained the Abbott name.
Throughout its history, ABT has continued to expand its product portfolio internally and through acquisitions, adding breakthrough inventions and extensive expertise across the areas of cardiovascular solutions, neuromodulation therapies, various diagnostics technologies, and more.
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Global MedTech Leader
Abbott Laboratories serves a broad range of end markets in over 160 countries around the world. With a market cap of $184 billion and annual revenues of over $40 billion, ABT ranks #99 on the Fortune 500 list of the largest U.S. companies by revenue.
The company operates through four reporting segments: Pharmaceuticals, Diagnostics, Nutritional Products, and Medical Devices. The latter segment is responsible for 42% of ABT’s total annual revenue, with the vast size of these operations making Abbott the largest medical devices provider in the world.
ABT’s Diagnostics segment is responsible for ~25% of total revenue, while Nutrition provides 20%, and Pharmaceuticals – which operates solely outside of the U.S. – is responsible for about 13%. Abbott is one of the most global healthcare companies in the world with over 60% of revenue generated in markets outside of the United States. A large part of this revenue is derived from fast-growing geographies, where healthcare spending is outpacing the growth of the economy (such as India).
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Stellar Finances, Robust Profitability
Despite numerous acquisitions, Abbott has not only maintained a low net debt-to-equity ratio but reduced it over the past few years. Its net debt is only 0.7x its EBITDA, with interest covered by EBIT many times over. This balance sheet strength adds to ABT’s resilience against unfavorable economic or market developments.
As for capital efficiency and profitability, the company ranks among the top of its industry in terms of return on assets, equity, and investment capital; its operating, net profit, and FCF margins are also better than those of most of its competitors.
In the past five years, Abbott’s revenues grew at a CAGR of 5.6%, and earnings-per-share increased at a CAGR of 17%. While the company experienced an overall decline in revenue last year, this was due to the direct effect of the wind-down of its coronavirus diagnostic products sales. Excluding these products, ABT’s revenues grew by almost 12% from the previous year.
Building on the success of 2023’s core business, ABT’s report for Q1 2024 reflected another strong quarter, with EPS surpassing estimates (as it did in all quarters since 2020 except one when it was in line). Q1 was the fifth consecutive quarter that the company delivered double-digit organic sales growth in its underlying base business, which included particularly strong results in Medical Devices and Pharmaceuticals. As a result, Abbott’s management raised its full-year sales and EPS guidance.
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Dividend King’s Crown
Abbott has been paying dividends for the past 100 years, one of the longest track records of uninterrupted payouts to shareholders. The company enjoys a “Dividend King” status, reserved for companies that have increased their dividends for more than 50 years. In February, ABT registered its 52nd consecutive annual dividend hike, raising the payout by almost 8%.
The company’s current dividend yield is 2%, higher than the Healthcare sector Average. The payouts have grown at a CAGR of 12% over the past five years and are expected to continue growing for years to come. This outlook is supported by ABT’s long dividend track record and modest payout ratio, as well as its stellar financial health and robust profitability.
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Total Return in Focus
Abbott’s stock was under pressure in the past year due to several factors. Besides the elimination of the Covid-testing windfall, investors have been worried that the global spread of GLP-1 diabetes and weight-loss drugs would negatively affect its diabetes-care business. However, ABT’s continuous glucose monitors are in fact a perfect supplement for these drugs, especially when used for diabetes treatment. In fact, Abbott’s diabetes care devices have seen strong growth in the past several quarters.
In addition, Abbott said it sees a significant opportunity for growth in its nutrition business line, as GLP-1 drugs reduce muscle mass, which the company’s products can help to decrease or avoid. In January, the company launched Protality, a new high-protein nutrition shake to support the growing number of people interested in pursuing weight loss while maintaining muscle mass.
However, these concerns have weighed on ABT’s stock, which has declined by 5% in the past 12 months and fell almost 25% from its peak in December 2021. As a result, the stock now trades at a moderate valuation compared to its history, and at the bottom of the price range for its peers. Furthermore, based on projected cash flows, the company trades about 10% below its fair value, making for an attractive entry point.
With strong earnings growth and optimistic guidance, analysts see an average upside of over 20% for the stock over the next 12 months. Stock performance should also be supported by buybacks, which Abbott performs on an opportunistic basis within the share repurchase program approved in 2021. In 2023, Abbott repurchased 9.8 million of its common shares for $1 billion.
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Investing Takeaway
Abbott Laboratories is a healthcare giant with a leading position in the global medical devices market, wielding strong pricing power and producing impressive results in terms of earnings. The company boasts one of the longest dividend track records in the market, with over 50 years of payout growth at notable rates. ABT’s innovative drive, coupled with its stellar financial health, supports the outlook for continued dividend growth for many years to come. Its recent stock underperformance provides an attractive opportunity to include this MedTech champion in long-term income portfolios.
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Dividend Investor Portfolio
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Portfolio News
¤ Edison International (EIX) reported its Q1 2024 results on April 30th, surpassing analysts’ EPS estimates and showing a year-on-year revenue increase.
¤ Automatic Data Processing (ADP) reported its fiscal Q3 2024 results on May 1st. The company posted a strong year-on-year growth in EPS, far outpacing estimates.
¤ Qualcomm (QCOM) delivered a stellar result in its fiscal Q2 2024, beating analysts’ estimates for revenue and EPS. The stock saw its best day in two years, after the world’s largest smartphone chipmaker lifted guidance, signaling that the phone market is on the road to recovery.
¤ Amgen (AMGN) reported its Q1 2024 results on May 2nd, topping analysts’ EPS estimates by a wide margin and lifting FY2024 guidance. In addition, the company also gave an update regarding its experimental obesity treatment, saying that its ongoing Phase 2 trial is showing encouraging results.
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Recent Trades
None at the moment, although we are considering adding a stock to our portfolio. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Dividend Growth Rate | Annual Dividend Income |
| 3.70% | 8.03% | $3,698.00 |
| Yield-on-Cost Adjusted |
Weighted Growth | Equal-Weight 100K Portfolio |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Dividend Yield | Annual DPS |
| Automatic Data (ADP) | Jun 14, 2024 | Jul 01, 2024 | 2.16% | $5.60 |
| Allianz SE ADR (ALIZY) | May 08, 2024 | May 13, 2024 | 4.38% | $1.50 |
| Amgen (AMGN) | May 16, 2024 | Jun 07, 2024 | 3.23% | $9.00 |
| BlackRock (BLK) | Jun 07, 2024 | Jun 23, 2024 | 2.68% | $20.40 |
| Edison International (EIX) | Mar 27, 2024 | Apr 30, 2024 | 4.29% | $3.12 |
| JPMorgan Chase (JPM) | Jul 05, 2024 | Jul 31, 2024 | 2.20% | $4.60 |
| Kroger (KR) | May 14, 2024 | Jun 01, 2024 | 2.02% | $1.16 |
| LyondellBasell (LYB) | May 30, 2024 | Jun 06, 2024 | 5.03% | $5.00 |
| Philip Morris (PM) | Jun 22, 2024 | Jul 11, 2024 | 5.82% | $5.20 |
| Qualcomm (QCOM) | May 30, 2024 | Jun 20, 2024 | 2.03% | $3.40 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
