Abbott Laboratories (NYSE:ABT) offers investors access to several segments of the healthcare industry, including diabetes care, medical devices, and diagnostics. The company also boasts a long record of raising its dividends, which is why it deserves consideration for investors who are looking for both income and long-term growth.
That does not mean that a company with a strong dividend history is a good investment. The real issue is whether Abbott can keep growing earnings and cash flow enough to support its share price, especially since its dividend yield is only about 2.5%.
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Business and Competitive Advantage
Abbott earns money through four main business areas: medical devices, diagnostics, nutrition, and its range of established pharmaceuticals. The company’s products include the FreeStyle Libre glucose monitors, cardiovascular devices, laboratory testing systems, and nutritional products.
The reason why Abbott has an advantage is the position it has obtained in these markets. Its products are widely used, its brands are well known, and its global distribution system enables it to get its goods to healthcare providers all over the world. It is not always easy to replace medical devices either. Hospitals and clinicians usually spend time and money on training their staff and setting up workflows around particular products, which makes it less appealing to switch to a competitor. These defensive qualities make the stock appealing in the bear market. However, another healthcare stock ranks higher than ABT on our Bear Market Stocks list and even trades at a lower forward multiple.
Abbott also has the benefit of not depending on a single product line, since if one business is slowing down, growth in another can compensate for the weakness. The latest figures indicate that the company still has scope for growth. In the second quarter of 2026, Abbott achieved a 13% year-on-year increase in revenue, with like-for-like sales up by 4.8%. The acquisition of Exact Sciences has allowed the company to expand its cancer diagnostics business, and strong growth has also been seen in the areas of electrophysiology, heart failure, and diabetes care. The company has recently obtained a CE Mark for Libre Duo, a sensor that tracks both glucose and ketone levels.
This opens new possibilities for Abbott, especially in diabetes care and diagnostics. Yet investors should consider the revenue figure mentioned in the headlines. Acquisitions can boost reported sales without the growth that comes from increased demand for current products. The 4.8% rise in comparable sales provides a more accurate indication of that underlying performance.
Dividend Yield and Sustainability
In September 2026, Abbott Laboratories announced a quarterly dividend of $0.63 per share, for an annualized payout of $2.52 per share. With a yield of about 2.5%, the share may not attract everyone seeking income; however, for investors willing to hold the stock for several years, the company’s dividend record is a significant part of the story.
The company has increased its dividend for 54 years running. That is a long record, but investors still have to decide whether the company can afford to keep increasing. Abbott’s annualized dividend payout ratio, calculated from trailing earnings of $3.09 per share, is about 82%, which is on the high side. Should earnings decline, the company would then have less scope to increase its dividend without placing additional strain on its finances.
Moreover, recent acquisition-related and other charges have also affected reported earnings, so the ratio does not tell the full story. The cash flow situation looks more positive. In the past 12 months, Abbott generated about $9.9 billion in operating cash flow and $7.8 billion in free cash flow; on this basis, its free-cash-flow payout ratio is about 56%.
To put it simply, Abbott is paying out just more than half of its free cash flow in the form of dividends. The rest can be used to invest in the business, pay down debt, pursue growth opportunities, and possibly increase shareholder payouts. This is why free cash flow matters here. Although reported earnings can be influenced by acquisition-related charges and other accounting items, a company’s cash flow gives investors an alternative way to assess whether its dividend is sustainable.
Of course, risks remain. Weak performance in the nutrition sales sector could negatively affect results, and integrating Exact Sciences might add costs. Furthermore, Abbott must ensure its new products and medical-device business meet the growth investors expect. Currently, the company’s diversified operations and cash-generating ability provide adequate support for the dividend.
Is Abbott worth the price it commands?
Abbott’s revenue history shows investors should not expect the business to grow at the same rate each year. Revenue fell from about $43.7 billion in 2022 to $40.1 billion in 2023, then picked up in both 2024 and 2025, and trailing-12-month revenue has since reached around $46.6 billion.
While the recovery is encouraging, acquisitions and currency changes have also affected the results. In the first half of 2026, reported sales rose 10.5%, while comparable sales rose 4.3%. This difference is significant because it shows that overall revenue growth does not necessarily reflect the growth rate of Abbott’s existing businesses.
The stock valuation also warrants a more detailed examination. Abbott trades at about 33.5 times trailing earnings and 17 times forward earnings. The forward multiple is considerably lower because analysts expect earnings to rise and because acquisition-related and other charges have reduced reported profits. However, it would be wrong to think that the lower forward P/E means that Abbott is a good deal. It all comes down to whether the company actually achieves the earnings growth built into those estimates. Read the stock’s detailed valuation here.
A forward P/E of 17 means that the earnings yield is approximately 5.9%. This is simply the inverse of the P/E ratio and shows expected earnings relative to the stock price. Abbott’s dividend yield is about 2.5%. This difference reflects the amount of earnings the company keeps rather than pays out to shareholders. The company may use that money to finance business investments, reduce debt, or support future growth. However, an earnings yield is not the same as a bond yield because bond payments are determined by the security’s terms, whereas Abbott’s future earnings may vary.
The figure has also fallen from about 22 to 26 times forward earnings in certain parts of 2024 and 2025 to approximately 17 to 18 times in more recent figures. Currently, investors pay less for each dollar of expected earnings than they did during those periods. Abbott has therefore become more interesting than it was when it was first valued. However, a lower multiple by itself does not provide a sufficient reason to buy the shares. Investors still have to observe steady growth in the core business and higher earnings in order to justify the forward forecasts.
Conclusion
What Abbott offers dividend investors includes an established healthcare business, a long history of increasing dividends, and sufficient free cash flow to comfortably meet its current payout. The forward P/E ratio appears more reasonable than the trailing P/E indicates, but this attractive aspect is based on earnings meeting expectations.
Investors should watch comparable sales growth, the cost of integrating Exact Sciences, and whether higher revenue translates into stronger profits and cash flow. Long-term investors who are interested in dividend growth should consider Abbott. Although the company’s current yield won’t provide much immediate income, its ability to generate cash and its well-established position in the healthcare sector provide a basis for future dividend increases. What matters is that today’s price leaves enough room for those expectations to be met.
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This article is originally published at Insider Monkey.
