Abbott Laboratories (ABT, Financial) fell 1.97% to $70.73 per share on the New York Stock Exchange Friday after the company’s announcement of a 14% cash quarterly dividend hike to 32 cents from 28 cents.
The increase, which will take time to be processed by the stock market, will produce upside in the share price of the Lake Bluff, Illinois-headquartered healthcare company. Abbott Labs has climbed 24% for the 52 weeks through Friday, outperforming the S&P 500 index by more than 22%. The share price is above the 50-, 100- and 200-day simple moving average lines. The stock has a market capitalization of $124.28 billion. The 52-week range is $55.42 to $74.92.
The price-book ratio is 4.05, above the industry median of 3.06, and the price-sales ratio is 4.11, versus the industry median of 3.15. The price-earnings ratio of 147.42 is far above the industry median of 30.17.
Abbott Labs is a loyal dividend payer. The company has paid a dividend for 95 years and increased the quarterly distribution 47 times over the last 47 years.
The company is sustaining the dividend payment with a sizeable amount of liquidity available in cash on hand, and an impressive yearly generated cash flow and sales. Its total liquidity available in cash and equivalents is $7.55 billion or $4.30 per share. Total cash per share alone is enough to cover the annual distribution for more than three years. From its 12-month operations the company is producing more than $6.2 billion. The operating cash flow has been up trending through time although at a slower pace over the past five years.
Sales are also increasing. They have climbed 12.1% year-over-year to $7.66 billion in the third quarter of 2018 and 31.35% to $27.39 billion in full-year 2018 from $20.85 billion in full-year 2017. Sales have grown 5.9% on average every year over the last five years.
Operating cash flow and sales are produced by the sale of products designed for a broad range of conditions. Abbott is structured in four segments: Nutrition, Diagnostics, Established Pharmaceuticals and Medical Devices. In the third quarter of 2018, Nutrition represented 24% of total revenue after a 4% year-over-year increase to $1.84 billion. The Medical Devices segment increased 8.4% to $2.82 billion and accounted for 36.8% of total quarterly revenues. Diagnostics grew nearly 43% and contributed 23.8%. The Established Pharmaceuticals segment accounted for 15.1%.
GuruFocus rates the profitability and growth ability of Abbott Labs a high score of 7 out of 10.
Total debt of nearly $24 billion is a significant amount. However, Abbott Labs can easily manage the repayment schedule since 24% of the total debt is due in one to two years, 23% is due in three to four years, and over 50% is due not before 2023. Further, the debt is considered investment grade by rating agencies and the interest coverage ratio is 3.72, signaling Abbott labs is not encountering problems with the payment of interest expenses. The threshold for the interest coverage ratio is 1.5.
GuruFocus.com has assigned a financial strength rating of 5 out of 10. This means that Abbott Labs is moderately prepared to resist any business slowdowns and recessions. The moderate rating is the result of a highly leveraged business, a stable financial situation, a Z-Score of 2.97, which indicates the company is affected by some kind of financial stress, and a lower return on invested capital of 2.25% than the cost of capital of 10.24%.
With a dividend yield of 1.81% on the share price at close Friday, Abbott Labs is attracting investors. Those who are not shareholders of Abbott Labs yet and want to benefit from the increased dividend payment need to be on the company’s books not later than Jan. 15, 2019. The ex-dividend date is scheduled for Jan. 14. The company will pay the dividend on Feb. 15, 2019.
Disclosure: I have no positions in any security mentioned in this article.
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