Abbott’s dividend yield near decade peak, signaling rare buying opportunity
Investing.com -- Abbott Laboratories is presenting a complex case for value seekers as its dividend yield climbs to a ten-year high, reflecting a stock price weighed down by the $21 billion Exact Sciences integration and nearly $500 million in upheld legal judgments.
Abbott is trading around $83 following a post-earnings pullback, pushing its dividend yield above 3% on a $2.52 annual payout that analysts believe has presented a rare buying opportunity and investors may be weighing the attractiveness of the current entry point given the dividend setup.
Abbott has been one of the notable names who has been for increasing dividend for the past 54 consecutive years and recently paid its 408th consecutive quarterly dividend since 1924. Market observers note Abbott for its dividend reliability.
Last week, A Chicago jury awarded at least $70 million to four mothers who said Abbott hid the risk that its cow milk-based formula for premature infants could cause necrotizing enterocolitis, a serious bowel disease. Jurors found Abbott knew about the risk but kept marketing the formula to hospital intensive care units. The compensation award was $53 million, and the punitive damage award was $17 million.
Abbott said it strongly disagrees, plans to appeal, and argues that medical experts and regulators consider the products safe and necessary. This is Abbott’s second trial loss in the infant formula litigation, and it now faces more than 1,700 similar lawsuits — 784 in federal court in Illinois and the rest in state court, mostly in Illinois.
Jefferies in a note said that ongoing NEC litigation against Abbott Laboratories and Reckitt Benckiser remains a manageable risk despite mounting legal battles over infant formula products, with analysts estimating potential settlements could range between $2 billion and $7 billion.
The brokerage noted that while state court cases have so far favored plaintiffs, federal multidistrict litigation (MDL) proceedings have largely gone in favor of the defendants. Jefferies said a second wave of MDL bellwether trials scheduled over the next six to nine months could become a natural window for settlement discussions.
Jefferies maintained that Abbott Laboratories is financially well-positioned to absorb a settlement if required, highlighting the company’s roughly $7.3 billion cash balance and strong cash generation. The firm kept its base-case liability estimate for Abbott at $1 billion to $2 billion, representing less than 2% of the company’s market capitalization.
The report comes as investors continue to monitor diverging outcomes between state and federal cases. State courts in Illinois and Missouri have delivered several large plaintiff verdicts, including a recent case against Abbott involving approximately $95 million in compensatory damages and about $400 million in punitive damages
However, Jefferies noted that federal MDL cases have so far produced a 3-1 record in favor of Abbott and Reckitt. Analysts added that regulators including the FDA, CDC and NIH have stated there is no conclusive evidence directly linking cow’s milk-based formula to NEC, with prematurity considered the primary driver of the disease.