Stock of the Week
NYSE Symbol: ABT
Stock price as of 3/20: $47.54
The dividend cuts keep coming. A surprise dividend cut three weeks ago from JP Morgan set off a flurry of other top financials cutting their dividends including GE and Wells Fargo. Luckily, there are a few blue chip defensive companies maintaining or raising their dividends. In the last several months, I have featured eight companies that have raised their dividends in the last year. The list includes 3M, McDonalds, Travelers, Kimberly Clark, Heinz, Caterpillar, P&G, and Coca Cola. This week I'll feature a ninth blue chip, S&P 500 company that has raised their dividend for the last 37 years. The featured stock of the week is Abbott Laboratories.
Back in January, Abbott Labs announced the acquisition of Advanced Medical Optics for $2.8 billion. This merger will allow Abbott Labs to take advantage of the aging baby boomers and their growing need for cataract and other eye treatments. Abbott expects the deal to be neutral to earnings in 2009 and 2 cents accretive in 2010. Along with the announcement of the merger, Abbott Labs provided 2008 earnings guidance in line with the $3.32 per share consensus estimates. 2008 turned out to be a great year for Abbott with earnings growth of 17%. Rivals are struggling to grow their business. For 2009, Abbott expects earnings of $3.65-3.70 a share slightly above consensus. The midpoint of this guidance reflects double-digit growth and will include the acquisition of Advanced Medical Optics. So while rivals, and the broader market, are seeing no earnings growth, Abbott is performing great with double digit growth. What bear market?
The valuation of Abbott is higher than rivals due to their strong balance sheet and broad product base. The stock trades for 2.2 times sales, 4.3 times book value, 13 times this year's earnings, and 11.8 times next year's earnings. The company will go ex-dividend on April 13th for 40 cents a share up from 36 cents last quarter. Thanks to the recent hike in the dividend, the yield is now up to 3.2%. Good stock performing great in a bear market.