We recently compiled a list of the 10 Best Dividend Kings to Buy for Safe Dividend Growth. In this article, we are going to take a look at where Abbott Laboratories (NYSE:ABT) stands against the other dividend stocks.

Investors often closely track the fluctuations of the stock market, eagerly expecting price increases. However, they may overlook another significant source of returns: dividends paid by companies to their shareholders. This aspect becomes even more appealing when considering companies that have a track record of consistently increasing their dividends over time. That’s where Dividend Kings come into play. These companies have raised their payouts for at least 50 consecutive years, which is not as easy as it sounds. Hence, only 54 out of thousands of publicly traded companies in the US have managed to achieve this goal.

Dividend stocks have played an important role in the market’s overall returns historically. Dividends have accounted for 34% of the market’s returns on average from 1940 to 2023. Particularly, from the mid-1800s to the mid-1900s, these stocks were the primary factors driving stock returns along with earnings growth. Warren Buffett recognized the value of dividend growth stocks. In August 1994, his company acquired 400 million shares of Coca-Cola, valued at $1.3 billion. Initially receiving a $75 million cash dividend from Coca-Cola in 1994, this amount increased significantly to $704 million by 2022. Buffett foresaw the compounding benefits of his initial investment in Coca-Cola, understanding how dividends would enhance returns over time. He once said:

“By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings [the dividends paid] exceed 100% of what we paid for the business.”

ALSO READ: Warren Buffett’s 8 Best Dividend Stock Picks

Dividend growth stocks have been hitting on all cylinders over the years. The Dividend Aristocrats index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has delivered impressive returns in the past, outperforming other asset classes despite fluctuating market conditions. ProShare highlighted the appeal of investing in this index, especially for income investors. The report noted that the index has consistently outperformed the broader market while maintaining lower market volatility since its inception. According to the report, an initial investment of $10,000 in May 2005 could have grown to over $61,000 by March 2023. In addition, the Dividend Aristocrats index surpassed the market in eight of the ten largest quarterly downturns since 2005. Recently, we covered the list of the 25 Best Dividend Aristocrats to Buy according to Street Analysts.

Although dividend growth stocks have delivered strong returns over the years, the challenge lies in maintaining purchasing power against inflation. High Yield Dividend Aristocrats index, tracking companies that have raised their payouts for at least 20 consecutive years, has grown its dividends at a rate that has surpassed inflation over the long term. The index generated an annualized return of 13.86% over the past 15 years, whereas the Consumer Price Index (CPI) returned 2.6% during this period. This shows how important dividend growth is in the grand scheme of things. In this article, we have discussed some of the best dividend kings that have shown solid dividend growth over the decades.

Our Methodology:

For this article, we scanned the list of dividend kings, which are the companies that have raised their payouts for 50 years or more. From that list, we picked 10 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years. We also considered hedge fund sentiment around each stock in Insider Monkey’s database, as of the first quarter of 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Abbott Laboratories (NYSE:ABT)

5-Year Average Annual Dividend Growth Rate: 12.05%

Abbott Laboratories (NYSE:ABT) ranks fifth on our list of the best dividend kings for safe dividend growth. The global healthcare company declared a quarterly dividend of $0.55 per share on June 14, which was consistent with its previous dividend. Overall, it holds a 52-year streak of consistent dividend growth. The stock’s dividend yield came in at 3.62% on June 19.

Healthcare is commonly seen as a defensive sector because people tend to prioritize essential medical treatments over other goods and services. Abbott Laboratories (NYSE:ABT) has fully leveraged the advantages of its industry and has positioned itself as a leader in several rapidly expanding healthcare areas, including diabetes management, diagnostics, cardiovascular care, and nutrition. The company’s diagnostic segment took a hit in the first quarter of 2024 due to decreased demand post-pandemic. Despite this, Street analysts predict that this healthcare giant will achieve over 11% top-line growth in 2024 and 2025. They hold a consensus Strong Buy rating on the stock with a $127.7 price target, which reflects a 22.8% upside potential. Abbott Laboratories (NYSE:ABT) is one of the best dividend kings on our list because the company has raised its payouts by over 12% on an annual average basis over the past five years.

Polen Capital also expects Abbott Laboratories (NYSE:ABT) to show growth in the second half of 2024. Here is what the firm said in its Q1 2024 investor letter about ABT:

“We increased our positions in ThermoFisher Scientific, Visa, Zoetis, Nike, and Abbott Laboratories (NYSE:ABT). Each of these companies is durable and available at attractive valuations, in our view, for the growth we see ahead. In fact, in the case of ThermoFisher, Nike, and Abbott Labs, we expect accelerating earnings growth in the back half of 2024 after more difficult earnings growth periods pass for each of these companies. ThermoFisher and Abbott will finally wind down most of their COVID-19 testing and vaccine-related efforts due to a lack of demand, so these should no longer be revenue growth headwinds.”

According to Insider Monkey’s database of Q1 2024, 62 hedge funds owned stakes in Abbott Laboratories (NYSE:ABT), compared with 64 in the previous quarter. These stakes are collectively worth nearly $2.7 million. Two Sigma Advisors was one of the leading stakeholders of the company in Q1. The hedge fund also boosted its ABT stake by 6,911% during the quarter.

While we acknowledge the potential of healthcare stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Overall ABT ranks 5th on our list of the best dividend stocks to buy. You can visit 10 Best Dividend Kings to Buy for Safe Dividend Growth to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of ABT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ABT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.