We recently compiled a list of 10 Best Dividend Aristocrats According to Wall Street Analysts. In this article we are going to take a look at where Abbott Laboratories (NYSE:ABT) stands against the other dividend aristocrats.

Shifts in investment trends have revealed new insights for investors in recent years. Certain times call for specific investments, and it’s often experienced investors who can spot these opportunities. However, it’s clear that the value of a good investment remains steady, even amidst ongoing changes. This is where the long-standing dividend aristocrats play a role. These companies are strong dividend payers, having raised their payouts for at least 25 consecutive years.

The extended periods of dividend increases have significantly boosted the impressive returns of these stocks over time. Since its inception in 2005, the Dividend Aristocrats Index has outperformed the broader market with lower volatility, according to a report by ProShares. In addition, these stocks demonstrated strong performance in all market conditions, capturing 90% of market gains while only experiencing 82% of market declines. Also read: 10 Best Dividend Aristocrats with Over 3% Yield.

Achieving 25 consecutive years of dividend growth is quite an accomplishment. Out of approximately 6,000 stocks listed on the NYSE and Nasdaq, only 67 are part of the prestigious Dividend Aristocrats index in 2024. This highlights that only a small number of companies have reached this milestone. Maintaining a record of annual dividend increases for 25 years means the company has managed to boost shareholder payouts through various challenges, including the dot-com bubble, the 2007 financial crisis, and the pandemic. This reflects a robust business model, strong cash flow visibility, and disciplined management of capital. Even dividend aristocrats can struggle with consistency, as we’ve seen recently. Companies like Walgreens and 3M were unable to sustain their decades-long dividend growth streaks and have been removed from the Dividend Aristocrats club this year. This highlights the importance of financial strength for dividend aristocrats. The Great Financial Crisis exposed the financial vulnerabilities of these dividend-growers, as 17 out of the 60 Aristocrats in the S&P 500 were removed in 2008 and 2009.

As mentioned before, dividend aristocrats have consistently outperformed the broader market since their inception, even during market downturns. Don Kilbride, a senior managing director and portfolio manager at Wellington Management, has noted this performance, particularly with the Vanguard Dividend Growth fund, which he manages. This fund focuses on companies that have reliably increased their dividends annually, some for decades. During the 2008 market crash, while the market fell 37%, Vanguard Dividend Growth only lost about two-thirds of that amount, thanks to its dividend-generating stocks. As the market recovered, the fund quickly made up for its losses, outperforming many of its peers. Kilbride further mentioned that dividend growth is crucial for weathering tough markets and achieving long-term success, stating that its benefits are substantial and enduring.

According to analysts, for those building their portfolios, incorporating dividend investments can be beneficial, particularly if the dividends are reinvested. By using dividends to purchase additional shares each time they are received, investors create a cycle where payouts increase with the number of shares owned, leading to the ability to acquire even more shares. In this article, we will take a look at some of the best dividend aristocrat stocks according to analysts.

Our Methodology:

For our list, we first scanned a list of the best dividend aristocrat stocks, which are the companies that have raised their dividends for 25 consecutive years or more. From this group, we picked stocks with a projected upside potential of over 10% based on analyst price targets. The stocks are ranked according to their upside potential, as of August 7. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q1 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Abbott Laboratories (NYSE:ABT)

Analyst Upside Potential as of August 7: 14.5%

Abbott Laboratories (NYSE:ABT) is an American multinational medical device and healthcare company. The company is attracting investors’ interest due to its broader range of businesses compared to its peers. This diversity provides multiple avenues for growth and enables the company to generate revenue from various sources. In the second quarter of 2024, the company posted revenue of $10.38 billion, which saw a 4% growth from the same period last year. Its diagnostic segment stumbled during the quarter, generating $2.2 billion in revenues, which fell by 5.3% from the prior year period.

Abbott Laboratories (NYSE:ABT)’s growth prospects were also highlighted by Diamond Hill Capital in its Q2 2024 investor letter. Here is what the firm has to say:

“Abbott Laboratories (NYSE:ABT) is a diversified health care company with an extensive portfolio that spans medical devices, pharmaceuticals, nutritionals and diagnostics. With a substantial portion of its revenues generated internationally, emerging markets contribute about 40% of overall sales. We have always liked Abbott’s diverse mix of businesses and its fundamental growth prospects. The management team has consistently demonstrated skill in capital allocation, highlighted by strategic divestitures such as the European generic business in 2014, and significant acquisitions like St. Jude in 2016.”

The healthcare sector is generally robust and can thrive through various market cycles, but it often faces challenges related to lawsuits. Abbott Laboratories (NYSE:ABT), for example, faces legal issues, particularly concerning its baby formula products, but these are not as severe as the extensive legal troubles faced by Johnson & Johnson, which involves tens of thousands of lawsuits. High legal costs can impact a company’s cash flow and its capacity to invest in growth opportunities. For Abbott, the cash position is strong, promising regular dividend payments in the future. Its trailing twelve-month operating cash flow came in at $7.9 billion and levered free cash flow amounts to $5.39 billion. As of the most recent quarter, the company had $7.22 billion available in cash. Street analysts maintain a Strong Buy rating on ABT, with a $109.9 price target, which reflects an upside potential of 14.5%.

Abbott Laboratories (NYSE:ABT), one of the best dividend aristocrat stocks on our list, has been making regular dividend payments to shareholders for the past 402 quarters. It also maintains a 52-year streak of consistent dividend growth. On June 14, the company declared a quarterly dividend of $0.55 per share, which was in line with its previous dividend. The stock’s dividend yield on August 7 came in at 2%.

Insider Monkey’s database of Q1 2024 indicated that 62 hedge funds held stakes in Abbott Laboratories (NYSE:ABT), compared with 64 in the previous quarter. These stakes are collectively valued at roughly $2.7 billion.

Overall ABT ranks 7th on our list of the best dividend aristocrats to buy according to Wall Street Analysts. While we acknowledge the potential of ABT as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than ABT but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.