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.
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
- Nervous system & brain
- General medicine
ABBVIE DIVIDEND YIELD
COMPOUND ANNUAL DIVIDEND GROWTH RATE
|1 Year||2 Years||3 Years||4 Years|
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!
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
- 2 other health care sector Dividend Deep Dive: Medtronic & 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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