Abbott Laboratories (NYSE:ABT)

Abbott Laboratories is an American pharmaceutical company founded in Chicago in 1888 by Wallace Calvin Abbott. It is engaged in the development, manufacture and sale of a diversified range of healthcare products, including: drugs, nutritional products, and diabetes monitoring and diagnostic devices. Its headquarters are in Abbott Park, North Chicago. In January 2013 the company was split into two entities: AbbVie (ABBV) and Abbott (ABT). Abbott contains the nutritional businesses, generic therapies and cardiac stents. AbbVie focuses on pharmaceutical operations, including the group's blockbuster anti-inflammatory drug Humira.

For each Abbott share, shareholders received one share of Abbvie (ABBV), while the value of their ABTs was halved. After the split, Abbott declared a dividend of 14 cents/share, while Abbvie declared a dividend of 40 cents/share. The combined total annual dividend for both companies of $2.16 per share is higher than the $2.04 per share annual dividend declared by Abbott in 2012. This company has increased its distributions for 40 consecutive years. To reflect this increase in ABT despite the January 2013 spin-off, I divided by two dividends prior to this date.

ABT today offers a yield of 1.70%, with significant growth potential in the coming years, while having a diversified portfolio of products and a competitive advantage in each of its markets. For example, in its medical devices segment, Abbott is number one in Lasik surgeries and number two in cataract surgery. There is an increased demand for healthcare products due to the aging of the population in most developed countries as well as an increase in chronic diseases. ABT has a relatively strong pipeline of products, a solid balance sheet and an excellent return on capital employed.

Abbvie (ABBV) focuses on many drugs including Humira, Kaletra, Lupron, Synagis etc. Humira generates about 50% of revenue for Abbvie. Its US patent expires at the end of 2016, while the European equivalent is expected to expire in April 2018.

There average annual dividend growth ABT's dividend yield is quite correct with 9.7%. Without being extraordinary, the fundamentals from a dividend point of view are in line with the company: discreet, solid, regular and sustainable. ABT is a bit of a mix between La Fontaine's turtle and ant.This strategy has been effective so far as the stock has outperformed the market over the long term while remaining relatively insensitive to its variations, with a beta of just 0.37.

 

ABT's volatility in CHF is just 13.22%, benefiting from the company's high international exposure and defensive business sector. About 40% of Abbott's sales are from emerging markets, while only 27% come from the US. This protects the stock from dollar movements, as a weaker greenback favours exports. $risk ABT's report confirms that a decline in the dollar has no impact on the share price in Swiss francs. As for AbbVie, however, nearly 55% of revenues are generated in the United States, and only 14% in emerging markets.

Spin-offs usually benefit both stocks that emerge from a company. I have long wondered whether to keep both stocks, sell both stocks, or sell ABBV and keep ABT, or vice versa. In the end, that makes four possibilities. My strategy Global Dividend Growers is based in particular on a history of increasing dividends, on the capacity to ensure this progression in the future and on protection against the risk linked to the dollar.

ABT is the part that remains the most in continuity with the old company, retaining not only its name, its broadest product pipeline, its growth capabilities and its very broad international exposure. As a result, the dividend and currency risk coverage characteristics are closer to those of the old ABT. On the contrary, ABBV is a more mature company, paying a generous dividend, but with weak growth prospects and whose income is mainly based on Humira, whose patent is about to expire. In addition, the company's strong exposure to the US market makes ABBV sensitive to fluctuations in the greenback.

For these reasons, I decided to sell my ABBV shares inherited from the old ABT and buy back the equivalent of new ABT. In the end, I find myself a bit like after a split, with twice as many ABT shares, and a company that has reoriented itself towards a strategy of concentrating its activities (even if the portfolio remains extremely diversified).