AbbVie Dividend Stock Analysis
Let’s jump into the health care sector. In the past, pharmaceutical companies have been good options for dividend investors. And today is no different.
So please join me for a dividend deep dive of Abbvie. And some thoughts on the Abbvie dividend. Most noteworthy, the company is best known for its successful drug Humira.
COMPANY BACKGROUND
AbbVie was founded in 2013. The company was formed through a spin off by Abbott Labs. As a result, the company has in excess of 100 years history in the pharma sector as part of Abbott.
Today, Abbvie targets specific and difficult to cure diseases. They also leverage their core R&D expertise to advance science.
Furthermore, Abbvie seeks better solutions for treating challenging diseases. Above all, they focus on developing drugs in the following therapeutic areas:
- Immune system
- Cancer
- Nervous system & brain
- Viruses
- General medicine
ABBVIE DIVIDEND YIELD
Abbvie pays an annual forward dividend of $3.84 cents per share. This is a 4.0% Abbvie dividend yield at the recent price of $95 per share.
COMPOUND ANNUAL DIVIDEND GROWTH RATE
| 1 Year | 2 Years | 3 Years | 4 Years |
| 12.3% | 12.6% | 15.5% | 12.5% |
In 2018, AbbVie has increased their dividend twice! The most recent payment is a 50% increase over the dividend payment from the fourth quarter of 2017. Certainly, this is some big time dividend growth!
REVENUE
Due to Humira, Abbvie’s revenue has grown steadily over the past several years. As a result, Humira represents about 65% of total revenues.
Revenue concentration in a single product represents a business risk. Humira sales could drop in the future due to:
- Loss of patent protection
- Competition from new drugs called biosimilars
Most noteworthy, lower Humira sales could have an adverse impact on future profits and the Abbvie dividend safety.
ABBVIE DIVIDEND, EARNINGS AND PAYOUT RATIO
Looking ahead for the year ending 2018, the dividend looks well covered. 2018 dividend payments represent about 50% of earnings and free cash flow.
A lower dividend payout ratio is a positive indicator. It shows the company has ample room to raise the dividend in coming years. Or, withstand an earnings drop with out having to reduce the dividend. 50% or less is a comfortable level for most companies.
Growth in 2018 earnings have come from a number of factors. Specifically, revenue growth, improved operational performance and the favorable impact of lower taxes.
VALUATION & CONCLUSION
Abbvie’s stock price is down about 24% from its 52 week high. The combination of a lower stock price and higher projected earnings for 2018 are favorable for new investors. As a result, the 2018 forward price to earnings ratio has decreased to about 14 times earnings. A lower price to earnings ratio typically represents a better value for the investor.
SUMMARY & WRAP UP
Abbvie is a solid company with a long operating history. The dividend appears well covered. In contrast, revenue concentration associated with Humira is a risk that should be kept in mind. The stock appears to be a reasonable value below $95 per share.
Abbvie represents a mid size holding in my portfolio. I have a cost basis of $54 share. And intend to hold the stock for the long term. In addition, I added to my position this week at $94.50 per share.
OTHER RELATED ARTICLES
I hope you enjoyed this article. If so, here are a couple others that you may find interesting:
- The model portfolio where Abbvie resides: The Dividend Deluxe
- The process I use for dividend stock analysis: Dividend Deep Dive
- Another health care sector Dividend Deep Dive: Johnson & Johnson
WHAT ARE YOUR COMMENTS?
Do you own or intend to purchase shares of AbbVie? What do you think of the company’s prospects? Leave a comment and let us all know!
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Disclosure & Disclaimer
As of this writing, I am long ABBV. First of all, the information on this site is for educational and entertainment purposes only. In addition, the information is not to be used as investment advice specific to your circumstances. Furthermore, consult your personal investment and/or tax advisers prior to investing money. Finally, please realize you are solely responsible for any investment gains or losses as a result of the investments you enter into. You can find additional information under this site’s disclaimer tab: Disclaimer & Privacy Policy.
The timing of this post is just…well, let’s just say I have a post scheduled for tomorrow that covers something very related…
Nice post, Tom – and the Humira competition / patent protection is a key point due to the majority of revenue from that particular product. The recent news on Tuesday with the deal between and Mylan and Abbvie will at least (hopefully) extend some dividend safety for a few more years, as well as provide revenue to Abbvie. – Mike
Mike, As they say, great minds think a like. I’m guessing this was your 2nd individual stock buy? Hopefully the deep dive has confirmed your decision if so. Looking forward to seeing your thoughts Thanks for the news on Mylan. I missed that. Tom
Let’s just say you made me move my post up…the timing is so ironic…and now you made me late for work 🙂 Thank you. – Mike
Sorry Mike. I don’t mean to be a bad influence. Tom
Hi Tom,
Thank you for this excellent deep dive into your reasons for purchasing Abbvie!
I’m trying to learn more about all factors involved in evaluating dividend stocks, and some of the analyses I’ve seen are so packed with technical jargon that my eyes glaze over while trying to make my way through. 😛
Your easy-to-understand way of explaining the factors one should consider is VERY helpful. I also appreciate that you take a balanced view, pointing out the potential risk involved in Abbvie betting primarily on Humira for income generation at this time.
Thanks for sharing! 🙂
Juli
Hi Juli. Thanks for the kind words. I’m glad you liked the article. I’ve been trying to make my stock analysis as clear as possible. I’ve been dividend stock investing for about 15 years and these are the things I really look at. My approach might not be for everyone, but it doesn’t have to be difficult. I’m a college accounting teacher (2nd career) and try to communicate very clearly when I’m teaching too. Tom
I have never heard of Abbvie but have heard of Humira. That is huge risk that 65% of their revenue is from one drug but perhaps that is common for drug companies (I don’t own any individual pharma/healthcare companies- did use to own JNJ).
Love your posts always learn something thanks Tom!
Thanks GYM. Abbvie is a spin off from Abbott Labs back in 2013. They operated within Abbott as the Pharmaceutical Products Division before that. So there history is short as a stand alone public company, but they have a long history within Abbott prior to that (Over 125 years). Tom
Another excellent deep dive Tom!
I’ve initiated and added to Abbvie in the last month. Currently holding 18 shares.
Somewhat related question. You wrote your cost base is in the $54 region and have now added at $94ish. Is that a mental threshold you have to cross si de ots so far higher then your cost base?
Thanks and that is an interesting question Mr. Robot. Sometimes I like to provide how long I have held a stock, the relative size of my position and the cost basis to readers. My main purpose is to provide the information as additional perspective. I also like to use those facts to emphasize I’m a long term investor. Of those, the size of my position is the only one I consider when making a purchase. The larger my position, the lower price I would prefer when adding on. In other words, larger position, tighter buy in target and visa versa.
On cost basis specifically, I never consider that when making an additional purchase. I know some investors like to use it as justification to buy more of a stock they own that has dropped in price. The logic to them is “I’m lowering my cost basis”. I never think of it that way. However, I do like to make incremental purchases over time (DCA) so I don’t accidentally buy in at the top. It’s kind of the same logic I guess.
Yeah for me it kind of leads to an ‘I can ONLY dca down and not up” kind of mentality which leads to some extra stress when buying. Totally unnecessary but still somewhat of a thing for me…
Understand Mr. Robot. I think most of us become better investors with time and experience. Tom
Nice analysis Tom, and as someone that is long ABBV (cost basis of $19 for reference) I am not planning to make any changes to that for some time.
The loss of patent exclusivity can be disastrous to a company if they don’t have a proper plan and pipeline to address that. I don’t see that being quite as big a concern as it has been for some other companies, but still hope to hear more about their plans on their earnings call next week.
I don’t plan to add more at these levels because they are one of my holdings that is considerably over-weighted in my portfolio right now. The drop in price today, seemingly a result of Citron report, sure tempts me though.
Hey DD. That cost basis is fantastic. I can only assume that is cost from pre-spin Abbott since ABBV as a stand alone company has never traded that low to my knowledge? Or am I missing something here? Understand your logic on buying more (or not). I also consider my portfolio weightings when considering buy targets. It just makes good sense to me. Tom
You’re correct, it is from the pre-spin of Abbott (which I have approximately the same cost basis in). I’ve been rewarded handsomely by that spin-off for sure.
Great job DD. I was just talking to my Dad this morning about Abbvie. Like you, he received his shares from the spin by Abbott and never added to them. So he has a super low cost basis too. I sold my Abbott shares before the spin and then bought back into both ABT and ABBV later. Probably should have just hung on and done nothing. But I don’t like uncertainty. Thanks for confirming. Tom
Thanks for the analysis Tom. One of my items on my nightly to do list was to see what the fuss is about ABBV! So this was a well timed post. I didn’t realize that Humira accounted for such a large percentage of revenues. No wonder the price fell drastically today when it was announced that there may be some competition to Humira. Hmmm, not an easy decision here. But the stock is definitely on my watch list!
Bert
Hi Bert, My recent purchase was so ill timed. One day later and I could have added at 5% less cost. I’m in it for the long haul, so I won’t sweat it much. On today’s drop, I read that an analyst came out saying the stock was a big time short candidate and may go to $60 per share. I’m not sure about that unless the dividend is cut. Otherwise the dividend will provide price support, in my opinion. I doubt Abbvie management would be so blind to raise the dividend this year so dramatically if it were at risk. Appreciate your comments. Tom
Hey Tom,
I’m ambivalent about this one. While it seems obvious that the healthcare sector will continue to grow as populations gradually become richer, older, and more numerous, the heavy reliance on a single drug concerns me.
The dividend is juicy, though!
Cheers,
Miguel
Understand your concern Miguel. It is a big one and that’s why I wanted to highlight it. I plan to keep my position of modest size and count on Abbvie’s pipleline as well as patent extensions based on new indications for Humira to keep them growing. But it is no sure thing. Tom
Great write up Tom. I love it when you do your deep dives on companies I own. I do agree with you that revenue concentration in any one product is subject to risk, but overall I do think that Abbvie is a good buy and hold company (for now).
Hi DP. You hit on one of several reasons why I started Dividends Diversify. Doing the deep dives provides structure around my thoughts on dividend stocks. And I figured if I published those thoughts in easy to read format, others could benefit from my efforts. Thanks for the feedback. Much appreciated. Tom
Hi Tom, ABBV offers a nice combination of earnings growth and dividend yield that’s hard to find. As you highlight, their dividend growth rate has been outstanding as well. My cost basis is a shade higher than yours at $56… looks like we may have gotten in around the same time.
While having one drug bring in such a large percentage of revenue certainly bears watching, it seems that’s not too uncommon for successful biotech firms. Gilead Sciences has a similar predicament with its hep C drugs, and Celgene with blood cancer drug Revlimid.
Hi ED, ABBV does have a nice combination of current yield plus dividend growth. Dominion is another company that comes to mind in that regard which I’ve added to a couple times this year. The combination of a 4%-5% yield and 7-8% dividend growth in the companies is really strong stuff. Tom
Hi Tom, I heard about Abbott Labs, but not Abbvie or Humira. I guess, for the good medicine, the demand is there. Thanks for the information. Have a great weekend.
Hi Helen, Thanks for your thoughts and you have a great weekend too! Tom
Never heard of it before! Will definitely start following it.
Thanks for such great analysis again Tom.
Cheers
Many good dividend paying companies Caroline, just so many to try and follow them all. So I totally understand. Tom
Nice analysis Tom!
Thanks DM! Tom
Nice analysis. I don’t own this company, but have shares in Pfizer. Apart from the dividend, it’s also due to the many popular brands they represent.
Hi SMM. Thanks for the complement. Pfizer is another formidable drug stock. You are such a loyal reader, I owe you a dividend deep dive for Pfizer one of these days soon! Tom
Nice write up. I have started and added to my position about 3 times so far this year. With the last dip I am debating adding again and continue to lower the cost basis. Also think the Humara patent is good through 2020. And the sales are not going to just drop to zero when it is over. Will still take some time. So they have a few years to find another best seller to supplement the sales before that happens. Like you said, their dividend still seems pretty covered so they are in a good place for a long term hold.
Thanks for your thoughts Daze. I am no expert on the topic of patents, but I think when they are able to get a patent on a new health condition with Humira they are then able to extend the patent for all prior conditions. If anyone is reading can confirm or deny this, I would appreciate it. Tom