Abbott Laboratories (NYSE: ABT) is a diversified health care company that gives investors a great deal of stability. Between testing, nutritional products, pharmaceuticals, and medical devices, the company has a good mix of segments that prevent the stock from being too dependent on just one area of the health care industry. That minimizes risk, and it can make Abbott an attractive option for investors who just want a quality dividend.
The company recently reported earnings numbers, which did show some good year-over-year improvement. With the stock's performance being lackluster over the past year, do the stronger results make now a good time to invest in the health care company?
Bottom line surges by more than 50% in Q4
On Jan. 24, Abbott posted its year-end and fourth-quarter numbers for the last three months of 2023. Revenue in Q4 rose by 1.5% year over year to $10.2 billion, but on an organic basis and when excluding COVID-19 testing revenue, it was up by 11%.
While Abbott is going up against some strong comparables, particularly in the testing business, it has generally been doing well and posting some decent growth numbers. Earnings of just under $1.6 billion also rose by an impressive 54% compared to the prior-year period as the company benefited from a reduction in operation costs, a lower tax bill, and an increase in revenue.
This year, the company expects that its organic sales growth rate, when excluding the impact of COVID-19 testing sales, will be between 8% and 10%. However, historically, this hasn't been a fast-growing business.
ABT Revenue (Quarterly YOY Growth) data by YCharts
The dividend streak reaches 400 straight quarters
One of the most impressive aspects of Abbott's stock is the consistency it has given investors over the years with respect to its dividend. The company will make its 400th consecutive quarterly dividend on Feb. 15. Abbott has been making dividend payments since 1924 -- that's 100 years!
In addition to being a safe dividend stock, the company is also a Dividend King, having raised its dividend payments for 52 consecutive years. In December, the company announced its latest increase, which was a 7.8% bump up to the payout. At $0.55 per quarter, the stock's dividend yield is up to 1.9%, which is better than the S&P 500 average of less than 1.5%.
Is Abbott's valuation too high?
Currently, Abbott's stock is trading at a multiple of 35 times its trailing earnings. Based on its estimated future earnings, the multiple is less than 25. However, even that is a bit expensive as the healthcare industry average is less than 21.
Shares of Abbott are trading near their 52-week high although the gains haven't exactly been impressive for investors; in the past 12 months, the stock has only risen by 3%, while the S&P 500 has climbed by 21%.
Should you invest in Abbott stock?
Abbott Labs provides good diversification and a great, consistent dividend. Its price is a bit high, but it isn't obscene compared to the industry average. Overall, it can be a good buy for dividend investors who want it for the dividend income. But there are better growth stocks out there to choose from than Abbott. While it's posting good organic growth right now, I'm not confident that it will be sustainable.
As long as you temper your expectations with the stock, it could make for a decent investment to hold in your portfolio. It likely won't be a market-beating stock, but it can be a reliable income-generating investment to hang on to.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool has a disclosure policy.
