We recently published a list of S&P 500 Dividend Aristocrats List: Sorted By Hedge Fund Sentiment. In this article, we are going to take a look at where Abbott Laboratories (NYSE:ABT) stands against the other S&P 500 dividend aristocrats.
The appeal of dividend growth growth stocks is unmatched. For those considering investing in dividend stocks, growth typically outweighs yield due to the consistent returns they have delivered over the years. Within dividend growth strategies, the dividend aristocrats stand out. Of the approximately 6,000 stocks listed on the NYSE and NASDAQ, only 67 companies earn the title of dividend aristocrats. These companies have consistently increased their dividend payouts for a minimum of 25 consecutive years. They are part of the broader market and are tracked by the Dividend Aristocrat Index.
Also read: 10 Best Dividend-Paying Stocks Under $50
Companies that regularly increase their dividends typically show strong financial health and stability, indicating their consistent profitability. A report by Fortune highlighted that, although it has lagged behind its benchmark, the Dividend Aristocrat Index has surpassed nearly all US active managers over the past decade. Rupert Watts, the head of factors and dividend indices at S&P Dow Jones Indices, discussed dividend growth strategies with the global media organization. Here is what the analyst said:
“Raising your dividend for 25 plus years is no easy feat. These are high-quality companies.”
Dividend aristocrats have delivered impressive returns, surpassing other asset classes. Since the index’s inception in 2005 through September 2023, the dividend aristocrats index has provided a total return of 10.35%, outpacing the broader market’s return of 9.54% for the same period. These stocks are celebrated not only for their dividend growth and steady equity gains but also for their lower volatility. During this timeframe, dividend aristocrats exhibited a volatility level of 15.35%, compared to the market’s slightly higher 16.31%. This indicates that dividend aristocrats tend to have more stable price movements. Their consistent dividend increases over 25 years or more demonstrate their ability to reward shareholders even during tough times, such as the 2007 financial crisis and the 2020 pandemic.
The debate between high yields and dividend growth continues. As of August 19, the High Dividend ETF, which tracks high-yielding companies in the broader market, offers a dividend yield of 4.18%. This yield would have been quite attractive to investors in the past. However, this year the ETF has only returned 4.8%, compared to the market’s 18% return. According to FactSet, investors have withdrawn over $1.1 billion from the fund, which is more than 15% of its $6 billion in assets. This indicates that investors tend to prefer dividend growth over high yields, as high yields are often seen as a sign of financial difficulties. In this article, we will take a look at some of the best dividend aristocrat stocks according to hedge funds.
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).
An operating room with a doctor monitoring a patient’s vital signs during surgery with a medical device.
Abbott Laboratories (NYSE:ABT)
Number of Hedge Fund Holders: 69
Abbott Laboratories (NYSE:ABT) is an Illinois-based medical device company that also specializes in various healthcare products and services. The company currently offers a quarterly dividend of $0.55 per share and has a dividend yield of 1.96%, as of August 19. It is one of the best dividend aristocrat stocks on our list as the company has paid dividends consistently for 402 quarters and also raised its payouts for 52 consecutive years.
Abbott Laboratories (NYSE:ABT) greatly benefits from its diversified business model, which offers multiple growth opportunities and allows it to generate revenue from various sources. In the second quarter of 2024, the company reported $10.38 billion in revenue, reflecting a 4% increase compared to the same period last year. However, its diagnostic segment faced challenges during the quarter, with revenues falling by 5.3% to $2.2 billion compared to the previous year. Analysts remain optimistic about the company’s prospects for the future. Diamond Hill Capital, in its Q2 2024 investor letter, also highlighted the company’s growth prospects. 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.”
While the healthcare sector is generally resilient and can perform well through various market conditions, companies face risks related to research and development. New innovations might lead to legal challenges if their products do not meet market expectations, and high legal costs can affect a company’s cash flow and its ability to invest in growth. For Abbott Laboratories (NYSE:ABT), however, the financial outlook remains positive. The company boasts a strong cash position, with a trailing twelve-month operating cash flow of $7.9 billion and a levered free cash flow of $5.39 billion. As of the latest quarter, Abbott had $7.22 billion in cash reserves, supporting its ability to maintain regular dividend payments in the future.
Abbott Laboratories (NYSE:ABT) remained popular among elite funds at the end of Q2 2024 as hedge fund positions grew to 69, from 62 a quarter earlier, as per Insider Monkey’s database. The stakes held by these hedge funds have a total value of over $3.5 billion. With over 10.5 million shares, Fisher Asset Management was the company’s leading stakeholder in Q2.
Overall ABT ranks 7th on our list of S&P 500 dividend aristocrats. 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.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
