Abbott: Growth and a Rising Payout

02/19/2014 8:00 am EST

Focus: STOCKS

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Our latest featured value recommendation spun-off its research-based prescription drug business at the beginning of 2013; it is now focused on nutritional products, diagnostic equipment, generic drugs, and medical devices, explains J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

Founded in 1888, Abbott Laboratories (ABT) is the leading provider of blood screening products used to detect pregnancy, heart disease, prostate cancer, hepatitis, HIV, sports doping, and other medical conditions.

The company also produces coronary metallic drug-eluting stents, and LASIK devices used in laser vision surgery.

Abbott has completed two acquisitions to add to its Medical Devices business. The first is IDEV Technologies, which makes a new drug-eluting stent and expands Abbott's endovascular segment.

OptiMedica is the second purchase. It makes an intraocular lens used after cataract surgery and provides Abbott with an immediate entry into the laser cataract surgery market.

Based on an upbeat year in 2013, management provided a very positive outlook for 2014 earnings. I expect sales to increase 7% and earnings per share to climb 12% to 2.25 in 2014.

Solid growth in nutritional products and diagnostic equipment sales will boost results. The company could exceed my forecast if pharmaceutical and medical device sales begin to improve.

The board of directors raised ABT's dividend by 57%, which now provides a yield of 2.4%. The increase marks the 42nd consecutive year that Abbott has increased its dividend payout.

Abbott shares sell at a reasonable current P/E (price to earnings ratio) of 17.8. The company's balance sheet is very strong with lots of cash and low debt.

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