Dividend Increase: AbbVie (ABBV)

Abbvie (ABBV) is a pharmaceutical company, established in 2013 by a spin off from Abbott Labs.  ABBV does research for development of new drugs and is best known for Humira, which has commercials on all the time.

Since becoming its own publicly traded company in 2013, ABBV has announced dividend increases ever since being spun off from ABT.

For 2017, ABBV has announced a $0.07 per share increase to their quarterly dividend, representing a nice 12.28% YOY increase for shareholders.  This brings the current dividend yield to 4.13% (12/13/2016).  This increase beats my expectation of a 7.02%, or $0.04 per share increase to $0.61 quarterly.

Dividend History:

A graphical look at the complete dividend history for ABBV since the spin off.

Looking at the short history of the ABBV dividend, we see the average annual increase comes in at 12.68% per year, impressive to say the least.  The annual payout comes in at the same 12.68% since all dividend increases have come with the Q1 payment.  At that rate of growth, passive income from dividends would double approximately every 6 years.

Company Data:

Market Cap: $100 Billion

PE Ratio: 16

Profit Margin: 24%

Revenue: $25.24 Billion (Humira represents about $10 Billion)

Total Cash: $7.95 Billion

Total Debt: $37.31 Billion

Current Yield: 4.13%

Payout Ratio: 60%

Pipeline is super important to drug companies.  Without a continual flow of new products, the major drug makers eventually lose revenue on established drugs as generics eventually come on the market, so having drugs in the pipeline is very important.  So the big concern for ABBV (and any pharmaceutical company) is what’s coming next.  With nearly half of the companies revenue coming from one drug alone, hopefully new drugs are along the way for final FDA approval.  Here is the pipeline for ABBV.  As you can see, there are several drugs at varying stages of FDA approval.  All it takes is 1 drug to get final approval and become a hit.  It also works the opposite way too.  A drug losing out on final approval can be a blow to expected revenue growth and hit the stock price.

Performance vs S&P500:

abbv-vs-sp500

Looking back 4 years (due to ABBV short publicly traded timeframe), we see that ABBV has outperformed the S&P500 since the start.

Conclusion:

I like ABBV for both appreciation and dividend growth prospects.  While I would expect the dividend growth rate to eventually slow down from the current 12% level, the potential of the drug pipeline could extend that growth rate out for a few more years.  As more drugs enter phase 3 and gain final approval, that should diversify the risk and dependence away from Humira being such a large portion of the companies revenue.  If we compare ABBV to MRK or PFE, it trades at a much lower PE ratio, while offering better or close to the profits of the bigger 2, which translates to a higher EPS.  I am long ABBV, and added 100 shares earlier this year.

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