AbbVie Stock Analysis And Dividend Review

Let’s work through an AbbVie dividend stock analysis today.

AbbVie is best known for its successful drug Humira. Also for being a pharmaceutical dividend stock. And one that pays a rising stream of high dividends.

There’s no reason to delay this stock analysis. Since I’m bound to have some thoughts on the AbbVie stock dividend, its growth, and safety. As well as if Abbvie is a good investment.

But, just in case you are looking for more good dividend-paying stocks. Be sure to check out some of our other stock reviews and dividend articles before you go.

Now, onto the Abbvie dividend review and stock analysis.

Affiliate Link Disclosure: I may get paid commissions (at no cost to you) for purchases made through links in this post.

AbbVie Stock Analysis: Company Background

History

AbbVie was founded in 2013. The company was formed through a spin-off by Abbott Labs, a diversified health care company.

As a result, AbbVie has in excess of 100 years of operating history. In the pharmaceutical sector, as part of Abbott. Plus its more recent years as a stand-alone company.

AbbVie Today

AbbVie stock trades on the New York Stock Exchange. It trades under the symbol ABBV (NYSE: ABBV).

In pharmaceuticals, AbbVie targets specific and difficult to cure diseases. They also leverage their core research & development expertise to advance science.

Furthermore, AbbVie seeks better solutions for treating challenging diseases. Specifically, they focus on developing drugs in the following therapeutic areas

Immune system
Cancer
Nervous system & brain
Viruses
General medicine

Source: AbbVie Therapeutic Focus Areas

AbbVie Stock Analysis: Business Strategy

AbbVie’s business strategy is pretty simple. At least on the surface.

First of all, they strive to develop a consistent stream of innovative new medicines.

Furthermore, they work to increase patient access to their products currently on the market.

Finally, they seek to expand the clinical applications of these same existing products.

Source: AbbVie strategy

Now, let’s move on with our AbbVie stock analysis. And, dig into the AbbVie dividend metrics.

Does AbbVie Stock Pay A Dividend?

Yes. Abbvie stock pays dividends.

The company pays dividends quarterly. And has done so every year since its inception in 2013.

We will cover all of the facts and figures about AbbVie’s dividend payments now.

How Much Is The AbbVie Annual Dividend?

AbbVie pays an annual forward dividend of $4.72 cents per share.

AbbVie Dividend Yield

AbbVie’s annual dividend payout provides for a 5.2% dividend yield as of the time of this article.

I prefer to buy dividend stocks with yields between 3% and 5%.

Stock prices are near all-time highs. So, it’s nice to see a dividend yield at the high end of my range.

The dividend yield has an inverse relationship with the price of a dividend-paying stock. In other words, as the stock price rises, the dividend yield falls.

How Often Does AbbVie Pay Dividends?

Some companies pay dividends monthly. But not AbbVie.

AbbVie pays dividends every 3 months or 4 times per year. Each quarterly dividend payment is $1.18 per share.

In Which Months Does AbbVie Pay Dividends?

Are you looking to have a steady stream of income from consistent dividend-paying stocks? Then, it’s important to know the months during which a company pays its dividend.

With that in mind, AbbVie pays dividends during February, May, August, and November.

The company targets the 15th day of these months to pay its shareholders. When the 15th falls on a weekend or holiday, AbbVie’s dividends are paid on the closest business day to the 15th.

AbbVie’s Ex-Dividend Date

As an investor, you must complete your purchase by a stock‘s ex-dividend date. In order to receive the next AbbVie stock dividend payout.

Abbvie’s ex-dividend date falls about 1 month prior to when its quarterly dividend is paid.

AbbVie’s ex-dividend date is slightly different each quarter. It depends on how the calendar falls.

So, it’s best to do your stock research about AbbVie’s ex-dividend date and payment information. That is if receiving the next dividend payment on an upcoming investment in AbbVie is important to you.

On the other hand, are you are a buy and hold investor like me? Then there is no need to worry about it.

Just invest in Abbvie. Hold your ABBV stock. Then you will be a shareholder. And qualify for every dividend payment in the future.

AbbVie Dividend History

AbbVie declared and paid its initial dividend during the first quarter of 2013. Since then, the company has paid a cash dividend in every calendar quarter.

During the subsequent 8-years, the company’s dividend increases have totaled 9. That averages out to more than one AbbVie dividend increase per year.

I prefer to invest in companies that have increased their dividends annually for at least 10 years. I made an exception with AbbVie.

Why? Mainly because of their history as part of Abbott. So far, I have not been disappointed with their track record of dividend raises.

Does this imply that AbbVie has had a high dividend growth rate? Maybe, but let’s find out for sure as we continue our AbbVie stock analysis.

AbbVie Dividend Growth Rate

1 Year	2 Years	4 Years	6 Years
19.2%	29.3%	20.7%	17.8%

As shown in the chart above, AbbVie stock has provided excellent dividend growth. Ever since the company was formed in 2013.

The 2020 AbbVie dividend increase was no exception. It came in at just a little over 10%

In 2018, AbbVie increased its dividend twice! Certainly, this is some big-time dividend growth. And has attracted the attention of many dividend stock investors.

AbbVie Dividend Policy

I know AbbVie has a dividend policy. The company’s announcements and actions around their dividend indicate as much.

On the other hand, I’m not aware of any formal communications to investors on the topic of dividend policy.

This is not a red flag for me. Many companies do not communicate a dividend policy. But, I like it when they do. It helps me set expectations for dividend growth. And make a plan for my future dividend income.

Okay. I’d like to move on to the next section of our AbbVie stock analysis. So, that concludes our dividend review.

For the next part of the AbbVie stock analysis. Let’s get into some of the company’s business fundamentals.

They will help me assess future AbbVie dividend growth. And the company’s current dividend safety.

AbbVie Revenue Trend

Due to the success of AbbVie’s blockbuster drug Humira, revenues have grown steadily over the past several years. As a result, Humira represented more than 50% of 2019 sales.

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. Also on AbbVie dividend safety. And, it is probable that Humira sales will decline in future years.

Stock market investors have taken note. Specifically, there has been uncertainty about future revenue growth. This has left AbbVie stock trading at low valuations in the recent past.

And is why AbbVie’s new product pipeline is critical for future revenue, earnings, and steady dividend growth. In addition to the recently closed acquisition of Allergan.

Allergan Acquisition

Abbvie announced the acquisition of Allergan in June 2019. Allergan is well known as the maker of Botox. The transaction was completed and closed in May 2020.

On a positive note, Allergan will reduce AbbVie’s dependence on Humira and new products in their development pipeline.

However, AbbVie paid a high price for Allergan. Plus integration issues usually come with such deals. This will need a close review as we move forward.

Acquisitions cost money and so do our dividends. They compete for valuable resources, mainly cash.

So, let’s continue with the AbbVie stock analysis. And look at earnings, cash flow, and the dividend payout ratios for each measure.

AbbVie Dividend Payout Ratio Based On Earnings

ABBV dividend payout ratio; earnings per share

Looking at the 2019 fiscal year. It shows the dividend is well covered. In fact, 2019 dividend payments were about 80% of earnings.

A lower dividend payout ratio is a positive indicator. It shows the company has ample room to raise the dividend in the coming years. Or, withstand an earnings drop. Without having to reduce the dividend.

It is important to note that 2017 earnings were depressed due to one-time impacts from the 2017 tax cuts and jobs act. In addition, 2018 earnings were negatively affected by the write-down of intangible assets. These assets were from the 2016 acquisition of Stemcentrx.

The Stemcentrx acquisition didn’t work out so well. Another reason to keep a close eye on the progress with Allergan.

These one-time non-cash charges are out of the way. So, AbbVie’s 2019 results start to show the true earnings power of the company.

At least before the impacts of Allergan. They will start to show in financial results for the last 3 quarters of 2020.

Speaking of cash, let’s check out cash flow next. And see how it stacks up against the company’s dividends.

AbbVie Dividend Payout Vs. Free Cash Flow

Looking at free cash flow tells me a lot. Cash earnings from the last several years support my thoughts about AbbVie’s strong earnings power.

Most importantly, the 2019 dividend payments consumed only 50% of free cash.

This leaves plenty of cash leftover. To fund the new product research and development pipeline. And return more capital to shareholders through increasing dividends. Plus, share buybacks in the stock market.

AbbVie Dividend Growth Forecast

I’ve completed my review of AbbVie’s dividend metrics. And business fundamentals. So, I can now make a dividend growth forecast.

A dividend growth forecast for my dividend stocks helps me in a couple of different ways. First of all, it sets an expectation to which I can compare future dividend increases. Furthermore, it helps me plan for my income from dividend payments.

Since its inception in 2013, AbbVie’s dividend growth has been outstanding. It’s hard to argue that point. However, it is unlikely that the company can keep up this pace.

For my financial planning purposes, I’m going to assume a 7% dividend growth rate in future years. This rate seems more sustainable to me.

Next, let’s move on to the company’s financial position. It’s an important part of the AbbVie stock analysis. Also, the last piece of the puzzle I need to assess AbbVie’s dividend safety.

AbbVie Credit Ratings

AbbVie has a Baa2 and BBB+ credit rating from Moody’s and S&P, respectively. These ratings are “investment grade – moderate credit risk” evaluations.

Credit rating evaluation grid for each major rating agency

Most solid dividend-paying companies hold investment-grade credit ratings. And, AbbVie is no different.

However, AbbVie’s credit ratings are at the low end of the investment-grade range. I also noted that the agencies downgraded AbbVie’s rating by one classification. Since I last reviewed the company in mid-2019.

Lower ratings are likely a result of AbbVie’s high financial leverage. Due to debt financing.

The debt is a result of large amounts of equity returned to shareholders in the last several years. This has been in the form of both dividends and share repurchases. And now more debt has been added to finance the Allergan acquisition.

Because of AbbVie’s large amounts of free cash flow, the financial leverage does not concern me at this time. However, it is worth watching as we go forward.

Source: FINRA bond center

AbbVie Balance Sheet

Looking at a companies balance sheet is an important part of stock analysis. I choose to do so by reviewing the debt to equity ratio.

AbbVie carries a very high debt to equity ratio. It checks in at 5.5 to 1.

This bears watching as we move forward. I’d like to see AbbVie use some of its free cash flow, after paying dividends, to reduce debt in future quarters.

AbbVie Dividend Safety

Is the AbbVie dividend safe? When you rely on your dividends for monthly expenses, this is a very important question.

Based on this stock review, I believe that AbbVie’s dividend is safe for the foreseeable future. Safe meaning it is unlikely that the dividend will be reduced.

There are some pros and cons related to AbbVie’s dividend safety. Let’s consider those now.

On the positive side, AbbVie’s dividend is well covered by cash flow. And to a lesser degree accounting earnings.

On the negative side, the company employs heavy financial leverage. This is in the form of long term debt. Furthermore, the deterioration in credit ratings bears watching.

Finally, the impact and integration of the Allergan acquisition are unknown. I want to see positive results from Allergan. So I can put that in the plus column for dividend safety in the months ahead. But, I’m not ready to do that just yet.

AbbVie Stock Valuation

Stock research should include a valuation review. Let’s do that as the next component of the AbbVie stock analysis.

AbbVie’s stock price is down about 20% from its all-time high in 2018. The combination of a lower stock price and higher 2019 earnings are favorable for new investors.

As a result, the AbbVie stock valuation looks pretty reasonable to me. And, it always pays to look for a good value when managing your money.

Let’s take a look at the valuation in the following ways:

AbbVie dividend discount model
Morningstar fair value estimate
Personal Finance investment newsletter buy target

AbbVie Dividend Discount Model

The single-stage dividend discount model considers several factors we have discussed so far.

Current annual dividend payment – $4.72 per share
Projected dividend growth – 7%
My desired annual return on investment – 10%

Using these assumptions, the general dividend valuation model calculates the fair value of AbbVie stock at a lofty $168 per share.

The current stock price is well below this level. Thus, it is clear the market does not place as high of a value on AbbVie’s dividend growth as I do.

Using the dividend discount model, the stock market suggests AbbVie dividend growth will be closer to 5%

Morningstar Fair Value Estimate Of AbbVie Stock

The investment analysis firm Morningstar believes AbbVie stock is fairly valued at $97 per share.

Source: Morningstar

Personal Finance Investment Newsletter

Finally, Personal Finance is a long time investment newsletter. It places a buy target on AbbVie stock at $100 per share or less.

Source: Personal Finance newsletter

AbbVie Stock Valuation Summary

We have looked at a number of valuation methods that suggest a range of values for AbbVie stock.

Very few stocks that I buy have such a wide discrepancy. From the highest to lowest valuations.

The large valuation range indicates a fair amount of uncertainty about this stock’s prospects. And about Abbvie’s future growth.

Here is a summary:

Dividend Discount Model fair value – $168 per share
Morningstar fair value – $97 per share
Personal Finance Newsletter buy target – $100 or less

The value measures show AbbVie stock to be reasonably priced at recent levels.

AbbVie Stock Analysis & Dividend Review Wrap Up

AbbVie is a strong company with a long operating history. First as part of Abbott Laboratories. And now as a stand-alone publicly-traded company.

Is AbbVie A Good Investment?

Yes. I believe AbbVie is a good investment.

Abbvie stock offers an attractive combination of dividend yield and dividend appreciation. But, before we conclude, here are some of the pros and cons to consider if you want to invest in AbbVie.

Points I Like About AbbVie Stock

High dividend yield
Strong track record of dividend growth
Sufficient dividend payout coverage from earnings and cash flow
Reasonably valued at recent price levels

Points That Concern Me About AbbVie Stock

High revenue concentration in one product: Humira
Dependence on their new product pipeline for future growth
The cost of the Allergan acquisition and related integration challenges
Significant use of debt financing and financial leverage

My Path Forward With AbbVie Stock

AbbVie represents a mid-size holding in my investment portfolio. I will consider adding to this position at or below $95 per share.

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AbbVie Stock Analysis And Dividend Review

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