Abbott Laboratories (Abbott) is engaged in the discovery, development, manufacturing, and marketing of a range of health care products. Some of these products include prescription drugs, nutritional liquids for infants and adults. Here are a couple products you may recognize:
Earnings & Cash Flow
ABT’s current 10 year dividend growth rate is 7.56%!
In Chapter 8 of The Intelligent Investor, Benjamin Graham, the father of value investing, describes the concept of Margin of Safety:
Any investor, who’s main goal is to preserve capital, should seek, in all his or her investments, a significant difference between the current value of a business and the price in which the business can be bought. This insures protection in case of an unfavorable event and to maximize the investment return if the analysis is confirmed.
In the words of his disciple, Warren Buffett: “Never depend on a good sale. Get a purchase price so attractive that even a mediocre sale will produce good results.
Although given the title of “Dividend King” we must be vigilant in maintaining price discipline. We typically purchase operating companies at 8-10 times Cash Flow. However, a stock like this warrants special attention due to its size and dominance of the market. Chances are no other company will be able to purchase a behemoth such as ABT, therefore we will put a value on the business of 30 times Cash Flow.
Conclusion & Valuation
ABT has a consistent & strong rising dividend, coupled with strong cash flow growth.
I am buying up to $69.45 and not a penny more!