Total Returns & Earnings-Per-Share Growth
What type of growth should Abbott Labs investors expect going forward?
I believe Abbott Labs investors should expect earnings-per-share growth of around 10% a year going forward. The company’s growth will come from a mix of acquisitions, organic revenue growth, small margin improvements, and share repurchases.
This growth combined with the company’s current dividend yield of 2.7% gives Abbott Labs investors expected returns of 12% to 13% a year.
Recent Acquisitions Are A Potential Growth Catalyst
One of Abbott Lab’s growth strategies is acquisitions.
The company has recently engaged in 2 large acquisitions:
– Alere Inc (ALR) for $5.8 Billion
– St. Jude Medical, Inc. (STJ) for $25 Billion
The Alere acquisition will boost Abbott Lab’s diagnostics segment.
The St. Jude Medical acquisition will bolster Abbott Lab’s medical devices segment.
Both acquisitions are expected to be accretive to earnings within the first full fiscal year after closing… Which is good news for shareholders.
Abbott Labs will benefit from these acquisitions far into the future. The company can integrate and roll out products from the respective acquired companies throughout the globe – this is the power of Abbott Lab’s international approach.
The St. Jude Medical acquisition is funded by a mix of cash and new share issuance.
I would have preferred Abbott Labs to take on additional debt rather than issue new shares to take advantage of historically low interest rates. Still, both acquisitions will likely be beneficial for long-term shareholders.
Abbott Laboratories (NYSE:ABT) Scores High Marks for Safety & Stability
The health care sector has historically performed better than average during recessions.
You simply cannot cut back on baby formula or pharmaceuticals when times get tough. This makes Abbott Labs recession resistant.
History has proven Abbott Labs handles recessions very well. Abbott Labs is one of the 10 most recession proof Dividend Aristocrats. It’s stock fell 5% in 2008… While the S&P 500 declined 38%.
The company grew earnings-per-share (and dividends) each year through the Great Recession of 2007 to 2009.
– 2007 Earnings-per-share of $2.84
– 2008 Earnings-per-share of $3.03
– 2009 Earnings-per-share of $3.72
Recession performance is only one aspect of the company’s safety.
Abbott Lab’s excellent dividend history speaks to its strength and safety:
– Paid dividends every year since 1924
– 44 Years of consecutive dividend increases
– Abbott is 1 of only 50 Dividend Aristocrats
It is highly likely the company’s dividend streak continues far into the future. The company has a reasonable payout ratio of 50% (using adjusted earnings).
Abbott Lab’s balance sheet is also in good shape. Through the 1st quarter of 2016, the company had about $4 billion in cash and $8 billion in debt on its books. To put that in perspective, the company generates about $3 billion a year in cash from operations.
