Abbott, Aflac, and ConEd

Dividend Aristocrats are blue chip companies listed in the S&P 500 index with large market capitalizations that have increased their dividends annually for a minimum of at least 25 consecutive years. I've found over the years that this list of Dividend Aristocrats is usually a good place to start looking for new stock purchases. But it's not a list that you blindly buy. I always look at a stock's yield as well as the consensus estimate of the stock's expected price one year out before I make any decision to purchase. 

I also do a quick review of each of the stocks' chart and the stocks' technicals to determine if any of the stocks on the Dividend Aristocrat list are on sale relative to their own past performance. The way I do that is to look at the stocks' technical indicators including the Bollinger Bands, it's 5, 10 and 20 day moving averages, it's MACD, it's RSI and it's ADX. Once I've completed this quick review I generally have a few stocks worthy of further review.

Based on that initial cursory review I have recently found three companies that require additional screening. These companies are Abbott Laboratories (ABT), Aflac Incorporated (AFL), and Consolidated Edison (ED). Currently two of the companies, ABT and AFL, appear to be in the process of reversing and turning up while the third company, ED, appears to have already started to turn up 3 or 4 days ago. From a purely technical point of view it looks like now is the time to be accumulating each of these shares. And calculating the future total expected return for each of these three companies looks good too. Over the next year ABT is expected to return 11.26%, AFL is expected to return 15.66%, and ED is expected to return 12.00%. 

Company
ABT
AFL
ED

Yield
2.29%
2.36%
4.73%

Current Price
$38.31
$62.66
$53.17

Target Price
$41.75
$71.00
$57.04

% Increase
8.97%
13.30%
7.27%

Each of these companies look like they may have excellent one year returns, but I like to hold securities for a longer period of time so I need to dig a little deeper to determine if any of these three companies is appropriate to hold for a longer period of time. So let's look a little deeper at each one of these three companies.  

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ABBOTT LABORATORIES

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. Its Established Pharmaceutical Products segment offers branded generic pharmaceuticals for the treatment of pancreatic exocrine insufficiency, irritable bowel syndrome or biliary spasm, pain, fever, inflammation, hypothyroidism, gynecological disorders, intrahepatic cholestasis or depressive symptoms, physiological rhythm of the colon, dyslipidemia, and hypertension, as well as provides anti-infective and influenza vaccines. The company’s Diagnostic Products segment provides diagnostic systems and tests, such as immunoassay and clinical chemistry systems; assays for screening and diagnosis for drugs of abuse, cancer, therapeutic drug monitoring, fertility, and physiological and infectious diseases; genomic-based tests; hematology systems and reagents; and diagnostic systems and tests for blood analysis, as well as instruments that automate the extraction, purification, and preparation of DNA and RNA from patient samples, and detects and measures infectious agents. Its Nutritional Products segment offers pediatric and adult nutritional products comprising various forms of prepared infant and follow-on formula. The company’s Vascular Products segment provides coronary, endovascular, vessel closure, and structural heart devices for the treatment of vascular disease. Abbott Laboratories also offers blood glucose monitoring meters, test strips, and data management software and accessories for people with diabetes; and medical devices for the eye, including cataract surgery, LASIK surgery, contact lens care products, and dry eye products. The company primarily serves retailers, wholesalers, hospitals, health care facilities, laboratories, physicians’ offices, and government agencies. The company was founded in 1888 and is headquartered in Abbott Park, Illinois. (Daily Chart) (Weekly Chart)

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Year
2015 Est.
2014 Est.
2013
2012
2011
2010
2009
2008
2003

Revenues
$23.84 Bil
$22.58 Bil
$21.84 Bil
$21.49 Bil
$28.47 Bil
$35.16 Bil
$30.76 Bil
$29.52 Bil
$19.68 Bil

Earnings
$2.47
$2.20
$1.62
$3.72
$1.98
$2.96
$3.69
$3.12
$1.75

Dividend
---
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$.64
$.84
$.72
$.88
$.80
$.72
$.46

Payout Ratio
---
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39.50%
22.58%
36.36%
29.72%
21.68%
23.07%
26.28%

Beta = .45
P/E Ratio = 25.20
1 Year Target = $41.75
ROE = 13.30%

Abbot Laboratories is a difficult company to understand and assess primarily due to its recent spinoff of it's research-based pharmaceutical section in 2012. That spinoff is a company onto itself today and is known as AbbVie Inc. It too is on the list of Dividend Aristocrats although it has only been a separate company paying dividends since 2012. It's inclusion on the list of Dividend Aristocrats is based solely on its previous affiliation with Abbott Laboratories.  And even though Abbot Laboratories' dividend technically hasn't been increasing annually for the last 25 years (due to the spinoff), the combined income from both companies has. Therefore the S&P500 has continued to list both of these companies on their Dividend Aristocrat list. 

While I believe Abbott Laboratories is an excellent company, I would rather see a longer track record of revenues, earnings and dividends since the divestiture before I commit money to acquire this security. For many other people this would not discourage them, but for me this is something I'm willing to wait for. I understand that revenue is estimated to increase by 3.38% in 2014 and 5.58% in 2015, and earnings are expected to increase by 35.80% in 2014 and 12.27% in 2015, but I would really rather see these as actuals rather than estimates. Therefore I don't see any urgency to own this stock at this time.

In addition, I have only have a limited amount of money to invest and I want to ensure that my money works as hard as I do. Therefore I want to invest in only in the best possible companies at the best possible time. And that means that I should wait. Finally, a P/E ratio of 25.20 is just higher than I like for my investments. I would really like to buy stocks with P/E ratios of 20 or less. For these reasons I will wait to accumulate any shares of this company.

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AFLAC INCORPORATED

Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products. The company offers various voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. It also offers products designed to protect individuals from depletion of assets, which comprise accident, cancer, critical illness/critical care, hospital intensive care, hospital indemnity, fixed-benefit dental, and vision care plans; and loss-of-income products, such as life and short-term disability plans in the United States. The company sells its products through sales associates and brokers, independent corporate agencies, individual agencies, and affiliated corporate agencies. Aflac Incorporated was founded in 1955 and is headquartered in Columbus, Georgia. (Daily Chart) (Weekly Chart)

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Year
2015 Est.
2014 Est.
2013
2012
2011
2010
2009
2008
2003

Revenues
$23.81 Bil
$23.35 Bil
$23.94 Bil
$25.36 Bil
$22.17 Bil
$20.73 Bil
$18.25 Bil
$16.55 Bil
$11.44 Bil

Earnings
$6.55
$6.18
$6.76
$6.11
$4.12
$4.92
$3.19
$2.62
$1.52

Dividends
$1.60
$1.52
$1.44
$1.36
$1.26
$1.16
$1.12
$1.00
$.32

Payout Ratio
24.42%
24.59%
21.30%
22.25%
30.58%
23.57%
35.10%
38.16%
21.05%

Revenue Growth Rate:   10 yr =   7.66%    5 yr =  7.66%
Earnings Growth Rate:  10 yr = 16.09%    5 yr = 20.87%
Dividend Growth Rate:  10 yr = 16.23%    5 yr =  7.56%
Beta = 1.73
P/E Ratio = 9.27
1 Year Target = $71.00
ROE = 21.60%

Aflac's biggest concern going forward is the sluggish Japanese economy where Aflac generates almost three fourths of their total revenue.  In addition, the deteriorating yen/dollar exchange rate over the last two years and the expected increase in the tax rate that's expected to occur this April in Japan has created headwinds for the company's top and bottom lines. None the less, Aflac has continued to meet it's projected revenues and earnings and going forward I expect this company to continue to be successful in attaining their goals. 

With revenue and dividends increasing in the 8% range the last five years and with earnings increasing significantly faster than that, I believe success will continue for this company for years to come. Combine this with a P/E ratio less than 10, a ROE of over 21%, and a payout ratio in the 20s, I believe the dividends are secure and will continue to grow for years to come at a very nice pace.

I will be looking for an entry point to accumulate this stock this week. Shares have fallen from the high 60s not too long ago to the low 60s recently, and any move closer to 60 would be a great place for me to begin accumulating this security. I think this company would be a great addition for my portfolio as funds become available.

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CONSOLIDATED EDISON

Consolidated Edison, Inc. (ED), through its subsidiaries, engages in regulated electric, gas, and steam delivery businesses. The company, through its subsidiary, Consolidated Edison Company of New York, Inc., provides electric services to approximately 3.3 million customers in New York City and Westchester County; gas to approximately 1.1 million customers in Manhattan, the Bronx and parts of Queens, and Westchester County; and steam to approximately 1,717 customers in parts of Manhattan. It operates 62 area distribution substations and various distribution facilities; 39 transmission substations and 62 area stations; electricity generation plants with an aggregate capacity of 706 megawatts that run with gas and fuel oil; 4,360 miles of mains and 387,881 service lines for natural gas distribution; and 5 steam-only generating stations. The company, through its subsidiary, Orange and Rockland Utilities, Inc., also supplies electricity to approximately 0.3 million customers in southeastern New York, and in adjacent areas of northern New Jersey and northeastern Pennsylvania; and gas to approximately 0.1 million customers in southeastern New York and adjacent areas of northeastern Pennsylvania. It operates 555 circuit miles of transmission lines; 14 transmission substations; 62 distribution substations; 85,474 in-service line transformers; 3,781 pole miles of overhead distribution lines; and 1,794 miles of underground distribution lines, as well as 1,777 miles of mains for natural gas distribution and 77 miles of mains for natural gas transmission. In addition, the company engages in the sale and related hedging of electricity to wholesale and retail customers; and sale of energy-related products and services, as well as participates in energy infrastructure projects. It sells electricity to industrial, commercial, residential, and governmental customers. Consolidated Edison, Inc. was founded in 1884 and is based in New York, New York. (Daily Chart) (Weekly Chart)

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Year
2013
2012
2011
2010
2009
2008
2003

Revenues
$12.35 Bil
$12.18 Bil
$12.88 Bil
$13.32 Bil
$13.03 Bil
$13.58 Bil
$9.82 Bil

Earnings
$3.61
$3.86
$3.57
$3.47
$3.14
$4.37
$2.38

Dividend
$2.48
$2.43
$2.41
$2.39
$2.37
$2.35
$2.25

Payout Ratio
68.69%
62.95%
67.50%
68.87%
75.47%
53.77%
94.53%

Revenue Growth Rate:   10 yr =  2.31%   5 yr = -0.18%
Earnings Growth Rate:  10 yr =  4.25%   5 yr = -3.74%
Dividend Growth Rate:  10 yr = 0.97%    5 yr =  1.08%
Beta = -0.02
P/E Ratio = 14.73
1 Year Target = $57.04
ROE = 8.80%

Consolidated Edison is one of those Dividend Aristocrats that just doesn't fit into my investing strategy. It distributes a nice dividend of approximately 4.70% but for me, that's where the story ends. With revenue, earnings, and dividend growth rates in the low single digits, I just see this company ending up costing me money over time. Without significant growth in revenues and earnings I just don't see how dividends will ever increase much at all. And with dividends growing slower than inflation, those dividends are actually decreasing over time. An investment in ConEd will actually decrease my purchasing power over time, and this isn't much better than hiding my money in a certificates of deposit. And the investment is not insured.

Even looking at the chart and seeing that the price is starting to move higher, it soon becomes obvious that with a one year price target of only $57.04, this stock isn't going anywhere soon. With that said, I'll pass on investing in this company. 

CONCLUSION

Of the three companies that I have reviewed above I am only interested in one of them - Aflac Incorporated. The stock price seems to be forming a short term bottom near $62.50 and near the lower Bollinger Band. With the MACD, the RSI and the ADX starting to turn up, this just may be the time for me to accumulate a few shares. 

Good Luck and Good Trading.