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Breaking Up is Good to Do

Private Briefingrecommendation Abbott Laboratories Inc. (NYSE: ABT) has been named to the Dividend Channel's "SAFE 25" list of stocks with strong payout characteristics.

According to the Dividend Channel, the stock's 3.3% yield – and a "superb" track record that includes at least two decades of dividend growth – warrants a spot on that list.

That rating system says that Abbott shares offer:

  • S (Solid return): A hefty yield and strong dividend characteristics.
  • A (Accelerating Amount): Consistent dividend increases over time.
  • F (Flawless history): Never a missed or lowered dividend.
  • E (Enduring): At least two decades of dividend payments.

The dividend is just one reason that we like Abbott Labs. And it's not even the biggest one.
The other reason is spelled S-P-I-N-O-F-F.

In the June 13 Private Briefing ("Two Companies for the Price of One"), we told subscribers to buy Abbott because of its impending split into two ventures – Abbott Laboratories Inc. (NYSE: ABT) (medical devices) and AbbVie Inc. (NYSE: ABBV) (pharmaceuticals).
That new flexibility offers great potential for the company.

The spinoff has already started trading on a "when-issued" basis, with investors valuing the new Abbott at $47.9 billion and the new drug company AbbVie at $55.3 billion.

The when-issued trading will set stock prices and values for the two companies when they officially split on Jan 1. The Dec. 31 closing values of the when-issued shares will set the opening prices for the split companies when the break-up is complete and the two different stocks begin trading on Jan. 2.

Abbott just declared a quarterly dividend of 54 cents a share, or $2.16 annualized – a 6% increase from the prior dividend of 51 cents. Post-spinoff, the dividend will be 14 cents from Abbott and 40 cents from AbbVie.

Scads of institutional and academic research shows that spin-off stocks trounce the general market averages for as much as three years after the transaction (a Lehman Bros. study found that spin-off companies beat the market by 40% in the first two years, while a Penn State University study found a three-year return of 76% – which was enough to beat the market by 31%).

Check out the original column to see just how powerful spinoff investing can really be.
Here's the coup de grace: Many spin-off companies are ultimately taken over at hefty premiums to their market price.

Abbott is breaking up the Abbott Park, Ill.-based company because the drug unit and the other operations have grown into two distinct business lines. CEO Miles White says the split will better allow investors to value the two businesses. And it will also give each venture more freedom to pursue growth.

The company is trying to expand use of the anti- inflammatory injection treatment Humira, the world's best-selling medicine with $7.93 billion in revenue last year. It's doing this by looking beyond rheumatoid arthritis (RA) to such additional "indications" as pediatric Crohn's disease and ulcerative colitis.

It's also studying treatments for Hepatitis C. And it's working on an additional RA therapy with Belgian baby biotech Galapagos NV (PINK ADR: GLPYY), another Private Briefing recommendation that's currently up 153.5% (and which we believe still has lots of room to run – check out the Sept. 11 report "When Martin Predicts a 10-Bagger, You Should Listen").

[Editor's Note: If you have a question to pose or an area of interest that you'd like us to cover, drop us a line at And remember: We recommend investors maintain a "trailing stop" of 25% on all holdings.]

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