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Abbott Laboratories (NYSE:ABT) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy Abbott Laboratories ( NYSE:ABT ) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Abbott Laboratories' shares on or after the 12th of January will not receive the dividend, which will be paid on the 15th of February.

The company's next dividend payment will be US$0.51 per share. Last year, in total, the company distributed US$1.88 to shareholders. Looking at the last 12 months of distributions, Abbott Laboratories has a trailing yield of approximately 1.8% on its current stock price of $112.33. If you buy this business for its dividend, you should have an idea of whether Abbott Laboratories's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Abbott Laboratories

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Abbott Laboratories's payout ratio is modest, at just 42% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 38% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Abbott Laboratories's earnings have been skyrocketing, up 45% per annum for the past five years. Abbott Laboratories is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Abbott Laboratories's dividend payments are broadly unchanged compared to where they were 10 years ago. You may notice a drop in dividends paid per share around 2013. This is not due to a dividend cut however, and is related to the Abbott Laboratories spinning off AbbVie (NYSE:ABBV) in 2013.

Final Takeaway

Is Abbott Laboratories an attractive dividend stock, or better left on the shelf? Abbott Laboratories has grown its earnings per share while simultaneously reinvesting in the business. Investors will be pleased to know that Abbott has been growing its dividends for over 50 years and its conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 1 warning sign with Abbott Laboratories and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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