I am always excited when a company plans to return more cash to its shareholders in both dividends and share buybacks. Recently, Abbott Laboratories (NYSE:ABT) declared a quarterly dividend of 14 cents per share. Moreover, the company’s board has also authorized a $3 billion share buyback program to replace a $5 billion buyback program that was recently completed. Is Abbott Laboratories (NYSE:ABT) a buy after a recent announcement of both a dividend and a share buyback plan? Let’s find out.
Expanding their reach in emerging markets
Investors might be excited about Abbott Laboratories (NYSE:ABT) due to their strong brand portfolio with leading positions in several business segments, including Nutrition, Diagnosis, Medical Devices and Established Pharmaceuticals. According to the company, it held the number one position in many fields such as Blood Screening, Immunoassay Diagnostics, WW Adult Nutrition, U.S. Pediatric Nutrition and Lasik medical devices. Interestingly, around 40% of its revenue comes from the emerging markets, while the U.S. market accounted for only 30% of its total sales. Abbott Laboratories (NYSE:ABT) intends to increase its presence in emerging markets, which were expected to account for 50% of the company’s revenue by 2015.
Spinning off AbbVie Inc (NYSE:ABBV) makes Abbott Laboratories (NYSE:ABT) looks good
At the end of 2012, Abbott Laboratories (NYSE:ABT) spun off a research-based business, AbbVie Inc (NYSE:ABBV), from the company. AbbVie Inc (NYSE:ABBV) is considered a developer of advanced therapies to treat complex diseases such as HIV and Parkinson’s disease. The spinoff of AbbVie Inc (NYSE:ABBV) out of Abbott gives investors more options to choose between Abbott with strong established portfolios or AbbVie Inc (NYSE:ABBV), which focuses mainly on drug manufacturing. AbbVie Inc (NYSE:ABBV)’s main product is HUMIRA, generating nearly $9.3 billion in revenue, accounting for more than half of its total revenue. After the spinoff, Abbott had a much stronger balance sheet, while AbbVie uses a lot of leverage in its operations.
As of March 2013, AbbVie recorded nearly $3 billion in equity, around $6.5 billion in cash and short-term investments, and more than $15 billion in debt and lease obligations. Moreover, AbbVie had a huge goodwill and intangible assets of more than $8.1 billion. Abbott has a much more conservative capital structure. It had nearly $22.6 billion in equity, $8.5 billion in cash and short-term investments, and only more than $7 billion in total debt. Abbott had only $6.1 billion in pensions and other benefits. The goodwill and intangible assets came in at only $8 billion. Consequently, while AbbVie had a negative tangible book value of $(5.1) billion, the tangible book value of Abbott was around $14.6 billion.