AbbVie traded around $64/share by the end of 2014. The company is still trading around $64/share today.
While the company's stock price has been flat, earnings and dividends have not.
AbbVie had earnings-per-share of $3.32 and paid $1.66 in dividends per share in fiscal 2014. The company is expected to have earnings-per-share of $5.50 and dividends per share of $2.56 in fiscal 2017.
This comes to 66% growth in earnings-per-share and 64% growth in dividends over 3 years. That's rapid growth by any measure.
Just as beneficial, it is highly likely that AbbVie continues to pay rising dividends every year far into the future ...
That's because the company is a member of the exclusive Dividend Aristocrats Index--a group of just 51 S&P 500 companies with 25-plus years of consecutive dividend increases. You can see the full list of Dividend Aristocrats here.
Careful readers may wonder how a 3-year-old spin off can have more than 25 years of dividend growth history. It's because AbbVie has increased its dividend every year since the spin off, and gets 'credit' for its time with Abbott Labs.
AbbVie is a screaming buy because:
- It has a high dividend yield of 4.0%
- It has a shareholder friendly management
- It has a low forward price-to-earnings ratio of 12
- It has strong historical growth and high expected future growth
AbbVie ranks as a strong buy and top 10 stock using The 8 Rules of Dividend Investing thanks to the above qualities.
Keep reading to learn more about the investment prospects of AbbVie--and why the stock is so unloved by the market right now.
Why the Market Hates AbbVie (and Why You Shouldn't)
On paper, AbbVie has everything an investor should look for--value, a high yield and a good growth rate.
The reason the market hates AbbVie is because there's some uncertainty surrounding the company ...
AbbVie generates around 60% of its revenue from just one 'superstar' pharmaceutical: Humira. Pharmaceutical companies always protect their drugs with robust patent portfolios.
AbbVie's problem is that Humira's patent portfolio began expiring at the end of 2016, creating uncertainty. And the market hates uncertainty.
The company's management is on record saying it will 'vigorously defend' its Humira patent portfolio from competitors. At the same time, AbbVie is (successfully) looking for new markets and uses for Humira.
The net result--AbbVie's management expects Humira revenue to increase from $16 billion a year currently to $18 billion a year by 2020. While it's true that's not rapid growth, it certainly isn't cause for alarm.
The primary reason the market hates AbbVie is because of its concentrated revenue stream (60% from one drug) and because of its looming patent expirations.
Fortunately for AbbVie, Humira revenues are expected to increase over the next several years.
Additionally, the company has taken steps to diversify its revenue stream substantially going forward.
AbbVie's Growth Prospects
Despite the previously mentioned slowdown in Humira's growth, AbbVie as a whole still has excellent growth prospects moving forward.
That's because AbbVie is one of the largest pharmaceutical companies in the world based on its market cap of $101.73 billion. This gives AbbVie the ability to:
Invest heavily in research and development
Acquire promising, smaller biopharmaceutical businesses
AbbVie is currently expecting to add $25 billion to $30 billion in new revenue from its late-stage pharmaceutical pipeline by the end of 2020.
For comparison, the entire company has revenues of $25.64 billion currently. AbbVie's management is expecting growth of around 14% a year going forward.
While this number is certainly possible, I believe it is a bit optimistic. Growth of 14% a year at AbbVie is a 'best case' scenario. Growth of 10% to 12% a year is more likely.
But growth of 10% to 12% a year combined with the company's current 4.0% dividend yield gives investors expected total returns of 14% to 16% a year. And that's before any valuation multiple gains.
Investors will likely experience even higher returns because there's a good chance AbbVie's valuation multiple rises as investors take note of its strong growth prospects and shareholder friendly management.
Disclosure: The author of the article is long ABT and ABBV.