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A Dividend Champion is defined as a company that has increased its dividend every year for 25 or more straight years. Abbott Laboratories (ABT) is a dividend champion that has raised its dividend every year for 39 consecutive years. The complete Dividend Champions list is compiled courtesy of David Fish. (Open as an excel spreadsheet and look at the tabs on the bottom to find the Dividend Champions list).

About Abbott Laboratories : from their website


Abbott Laboratories : A Dividend Champion with 39 Consecutive Years of Dividend Increases

Since dividends are paid out of earnings, a clear perspective of a company's historical earnings growth record is a vital component of a dividend investor's prudent due diligence process. The following graph plots Abbott Laboratories' earnings per share since 1993. A quick glance to the right of the graph shows that Abbott Laboratories has increased earnings at a compounded rate of 10.2% (see purple circle on graph) per annum.

Dividend Champions Gave Shareholders a Raise in Income 25 Years Straight or Longer

With interest rates hovering near all-time lows, investors seeking income are faced with very limited choices. The traditional high yield available from bonds and other fixed income vehicles are no longer available to meet the goals of retirees needing income to live off of. Moreover, it is almost a certainty that today's low yields are not adequate enough to fight inflation. Consequently, there is a growing investor interest in dividend-paying common stocks, especially those that have a long record of increasing their dividends every year.


Since dividends are paid out of earnings, and therefore, represent additional return on top of what the market capitalizes earnings at, they are depicted by the light blue shaded area and stacked on top of the earnings line. Therefore, a quick visual of these two important components is simultaneously revealed: The additional return that dividend paying stocks provide, plus the percentage of earnings paid to shareholders as dividends (payout ratio).

Performance Table: Capital Appreciation and Dividend Income Abbott Laboratories


When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident. In addition to the 7.1% capital appreciation (Closing Annualized ROR), long-term shareholders of Abbott Laboratories would have received an additional $117,820.68 in dividends that increased their total return from 7.1% to 8.7%% per annum.

(Note: Since this is a Dividend Champion, it has raised its dividend every year for at least 25 years, therefore, negative dividend growth rates shown, if any, will be attributed to special additional dividends paid in excess of the company's regularly reported dividend rate)


A further indication of valuation can be seen by examining a company's current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for Abbott Laboratories is 2.31, which is historically low.

Looking to the Future



2. The price or valuation you pay to buy those earnings


Therefore, it logically follows that measuring performance without simultaneously measuring valuation is a job half done. At its current price, which is attractively aligned with its True Worth™ valuation, Abbott Laboratories represents a potential opportunity to invest in a Dividend Champion at a reasonable price. The important factor is that Abbott Laboratories has real assets and cash flow underpinning its stock price. This solid economic foundation offers shareholders the potential for both a strong margin of safety and an opportunity for an increasing dividend income stream and potentially attractive future returns.


The consensus of 21 leading analysts reporting to Capital IQ forecast Abbott Laboratories long-term earnings growth at 8%. Abbott Laboratories has medium long-term debt at 33% of capital. Abbott Laboratories is currently trading at a P/E of 12, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, Abbott Laboratories' True Worth valuation would be $109.18 at the end of 2017, which would be a 14.2% annual rate of return from the current price, including assumed dividends.

Earnings Yield Estimates


Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Abbott Laboratories to an equal investment in 10-year Treasury bonds illustrates that Abbott Laboratories' expected earnings would be 6.3 times that of the 10-Year T-Bond Interest. (See EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.

Summary & Conclusions



Source: Abbott Laboratories: Dividends, Earnings And Valuation Analysis