Tuesday, September 29, 2015

Recent Buy - ABT

Money is really tight for me this month. However, I managed to scrape enough capital to make a final purchase for the month.

On Monday, I bought around 26 shares of Abbott Labs (ABT). This is a new position.

Action
Security
Price
Quantity
Amount
Buy
ABT
$39.24
26
$1027.19

This purchase increases my forward dividends by $24.96..


If you read my blog, my portfolio is very light in the healthcare sector. ABT (and other healthcare companies) took a beating recently which is an opportunity of dividend growth stock investors. Okay, the whole market is beaten down.

My criteria table is below. It’s a bit difficult to get 5+ years data due to the ABT/ABBV split in 2013. However, based on almost 3 years data, the growth metrics are very attractive The yield is usually below 2.0% which is below my threshold, but the market is making ABT palatable for my portfolio.

ABT 9/2015
Area
Criteria
CheckList
Comment
Quality Company
Dividend Growth
>5 years
No
ABT & ABBV split in 2013. ABT provided dividends for 42 yrs
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable
FCF over Dividends
Yes
Yes
FCF covers Dividends
M* Moat
Wide Moat
No
Narrow
M* & S&P
Credit Rating
> BBB+
Yes
AA-
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
Yes
Cash to Debt 1.28
Interest Coverage 17.33
Debt to Equity 37.96
M* & S&P Stars
> 3 Stars for both
Yes
M* 4 Stars
S&P CapIQ 4 Stars A- rated
Payout Ratio
<60%
Yes
58.44%
Dividend Growth
& Yield
Dividend Yield
>3%
No
2.35%
Dividend Growth
>5%
No
N/A - Split with ABBV, last yr div growth 10%
Chowder
>12%
No
N/A - Split with ABBV, last div growth yr chowder 12.35%
Valuation
Yield/Avg Yield since 2013
>1.1
Yes
1.24
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 50.29
Low Point 39
P/E
Below Mid Point
Yes
Median 17.67 Current 13.27
DDRM
~10%
Yes
Assuming 6% growth; projected return=11.28%
M* Estimate
<M* est
Yes
M* 49
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 58
* Data based on Gurufocus, Google Finance, Yahoo Finance

Based on DDRM, Yield Theory and PE analysis, I estimate the fair value price to be around $50. ABT is currently trading around $40, which means it is currently very attractive.

The reason why my capital is low this month is because Mrs D4s decided to plan our family vacation early - one whole year early! I guess when you see a bargain (tickets being half price), you just have to go for it! So, we will be travelling to Asia next summer. Let's see how this will play out...

Anyway, let me know what you think for ABT.
D4s

12 comments:

  1. Nice purchase, Div4Son.

    Haha a vacation whole year early?! Sounds like a scam ;) Im sure when next year rolls around, you guys will be yearning for another one.

    R2R

    ReplyDelete
    Replies
    1. R2R,
      Let's hope its not a scam! It could be the airlines grabbing all the cash they could before going kaput!
      D4s

      Delete
  2. Nice buys D2S. Great dividend history and decent yield, payout ratio and P/E. Looks like you got a nice value buy there. And way to grab a vacation at discounted prices as well.

    Cheers to another roughly $25 in forward dividends! AFFJ

    ReplyDelete
    Replies
    1. AFFJ,
      Thanks for your comments! ABT has been on my watchlist since the beginning, but the yield was always to low to justify a buy. Let's see if I can grab more healthcare stocks in the next couple of weeks (when fresh capital comes rolling in!)
      D4s

      Delete
  3. Nice work attacking healthcare on the pullback! Wow, I don't like to plan trips more than a week or two in advance.

    ReplyDelete
    Replies
    1. Dividend Chimp,
      Normally, we plan trips 3-4 weeks prior to the trip. But this time, the tickets are half the price! You can imagine the price for a family vacation (with extended members) travelling to Asia. Yes - major cash drain. The problem is things can change in the future... can tell what will happen. Let's see how this will go.
      D4s

      Delete
  4. If you're interested, here's a very interesting article one of the most successful value investors ever, Michael Price.

    The author must have taken lecture notes.

    See comments on valuing pharmaceutical companies below. I'd hazard a guess that ABT would fit the mold here.

    http://gregspeicher.com/?p=1036

    How He Values Pharmaceuticals

    Value investors never traditionally looked at pharmaceuticals because they sold at high P/E’s. Price bought Merck when its stock price declined under the specter of HillaryCare.

    To value a pharmaceutical company, he takes all the drugs they are currently selling, assumes an 85% profit margin, and does a discounted cash flow projection based on the remaining life on each drug’s patent. Ideally, you want to buy the stock at a discount to these cash flows and get the pipeline for free; this, according to Price, doesn’t happen very often. He noted that pharmaceutical companies have good balance sheets, the prospects of consolidation – because the industry needs it, and strong dividends that provide a floor for the stocks.

    ReplyDelete
    Replies
    1. Daniel,
      I am not aware of this method to value Pharmaceutical companies. My key is earnings growth.
      Thanks for visiting.
      D4s

      Delete
  5. Nice add to your portfolio. I have held ABT for many, many years with no plans to sell for the foreseeable future. ABT is on my short list for baby DivHut too. Thanks for sharing!

    ReplyDelete
    Replies
    1. DivHut,
      Thanks for your comments. I really like ABT and hope to add more if possible. I'm glad to be a fellow shareholder.
      D4s

      Delete
  6. We all can thank Hillary Clinton for the biotech buys :P!! As they were all hanging up there so high to reach. Nice buy! the growth itself will pay off in the long run.

    ReplyDelete
    Replies
    1. Vivianne,
      Yes! Just a comment - and the sector collapses. Such power! Where's Trump for his response?
      Thanks for visiting.
      D4s

      Delete