Saturday, 20 October 2012

Why Abbott Laboratories is Overvalued

I've been wanting to start a blog for some time now. When surfing the net, I found very little on Average Dividend Yield, which is an evaluation metric that helps me identify when a stock is on sale. My blog will show you how to use this metric to evaluate a dividend growth company. So let's get started...

In November 2010 and again in January 2011, I bought a total of 285 Abbott shares at an average price of $48.03. Because I wasn't sure where the company was going with the spinoff, I sold them in June 2012 at $60.77 + $716.68 in dividends. In retrospect, keeping them a bit longer would have been better, much better!

Average Dividend Yield

Abbott's three year average dividend high yield is 3.94%, which, considering an estimated annual dividend of $2.16 for 2013, corresponds to a stock price of $54.88. On October 19, Abbott closed at $66.15, corresponding to a yield of 3.27%.


ABT
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2000
$56.25
$29.38
$0.17
$0.19
$0.19
$0.19
$0.74
2.52%
1.32%
2001
$57.17
$42.00
$0.19
$0.21
$0.21
$0.21
$0.82
1.95%
1.43%
2002
$58.00
$29.80
$0.21
$0.235
$0.235
$0.235
$0.915
3.07%
1.58%
2003
$47.15
$33.75
$0.235
$0.245
$0.245
$0.245
$0.97
2.87%
2.06%
2004
$47.63
$38.26
$0.245
$0.26
$0.26
$0.26
$1.025
2.68%
2.15%
2005
$50.00
$37.50
$0.26
$0.275
$0.275
$0.275
$1.085
2.89%
2.17%
2006
$49.87
$39.18
$0.275
$0.295
$0.295
$0.295
$1.16
2.96%
2.33%
2007
$59.50
$48.75
$0.295
$0.325
$0.325
$0.325
$1.27
2.61%
2.13%
2008
$61.09
$45.75
$0.325
$0.36
$0.36
$0.36
$1.405
3.07%
2.30%
2009
$57.39
$41.27
$0.36
$0.40
$0.40
$0.40
$1.56
3.78%
2.72%
2010
$56.79
$44.59
$0.40
$0.44
$0.44
$0.44
$1.72
3.86%
3.03%
2011
$56.44
$45.07
$0.44
$0.48
$0.48
$0.48
$1.88
4.17%
3.33%
2012


$0.48
$0.51
$0.51
$0.51
$2.01


2013


$0.54
$0.54
$0.54
$0.54
$2.16









12y ave
3.04%
2.21%







5y ave
3.50%
2.70%







3y ave
3.94%
3.03%







5y
$61.77
$74.38







3y
$54.88
$66.42







Super Cheap
$51.78

Note: Stock prices and dividends are per calendar year. 
           Dividends are listed in the quarter they were paid. 

Graham Price

Abbott's 2009, 2010 and 2011 EPS were $3.69, $2.96 and $3.01. 3Y Ave EPS = $3.22.
Abbott's book value is $15.56.
Graham Price = SQRT ( 3Y Ave EPS * BV*22.5) = $33.58

Cyclically Adjusted Price to Earnings Ratio

Abbott's 10Y Ave EPS = $2.38
CAPE = 10Y Ave EPS / Stock Price = $2.38/$66.15 = 27.76
A CAPE somewhere in the low 20's would be more reasonable.

Conclusion

These metrics show that Abbott Laboratories is currently overvalued. Buying a good stock at an excessive price increases risk and lowers future returns.

No comments:

Post a Comment