Income Investors Should Know That Abbott Laboratories (NYSE:ABT) Goes Ex-Dividend Soon
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Abbott Laboratories (NYSE:ABT) is about to trade ex-dividend in the next 2 days. If you purchase the stock on or after the 14th of April, you won't be eligible to receive this dividend, when it is paid on the 15th of May.
Abbott Laboratories's next dividend payment will be US$0.36 per share. Last year, in total, the company distributed US$1.44 to shareholders. Last year's total dividend payments show that Abbott Laboratories has a trailing yield of 1.7% on the current share price of $86.04. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Abbott Laboratories has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Abbott Laboratories
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Abbott Laboratories is paying out an acceptable 64% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 50% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Abbott Laboratories's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Abbott Laboratories's earnings per share have risen 13% per annum over the last five years. Abbott Laboratories is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Abbott Laboratories's dividend payments per share have declined at 1.0% per year on average over the past ten years, which is uninspiring.
The Bottom Line
From a dividend perspective, should investors buy or avoid Abbott Laboratories? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Abbott Laboratories is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, while it has some positive characteristics, we're not inclined to race out and buy Abbott Laboratories today.
While it's tempting to invest in Abbott Laboratories for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Abbott Laboratories and you should be aware of them before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
