Dividend Increase: AbbVie (ABBV) 2018 Again?

AbbVie (ABBV) has announced it’s second 2018 dividend increase 0f 25 cents per share, bringing the quarterly dividend to $0.96 per share from 2017’s $0.64 and the previous 2018 increase of 0.71. This represents a 35% increase to the dividend from the previous 2018 increase and marks the 5th straight year of dividend increases from the company, since being spun off from ABT in 2013, and 6 years of uninterrupted dividend payments.  This is the second year the company has announced 2 dividend increases in a year.  The company has cited the tax reform for the second generous increase, and also announced a $10Billion share buyback.  These announcements are becoming more frequent from companies, as I’ve been expecting, and the tax reform will benefit shareholders, drive stock prices higher, however I don’t believe it will really benefit jobs as we are nearing full employment.

With the new quarterly dividend, the yield on ABBV sits at 3.24% based on the current price of $118.63. The second announced increase, beats my expectation as I only estimated 1 regular increase for the year.

Lets take a look at the complete history of ABBV’s dividend:

As we can see from the chart, ABBV has a 5 year streak of increasing its dividend, but actually has two years with 2 increases. The average increase to the short dividend history comes in at and inflation crushing 20.09%. In the 6 years, the dividend has more than doubled already, growing at 140%.

ABBV vs S&P500

A good dividend is nice to receive, but capital appreciation is also important. Let’s compare the performance of ABBV (since inception) to the S&P500.

Looking from late 2012 (when ABBV was spun off) we see that ABBV has handily outperformed the S&P500. Most of that outperformance has occurred in 2017 with excitement over the pipeline from ABBV moving into late stages of FDA approval.

ABBV Stats

Market Cap: $190.04 Billion

Beta: 1.48

PE Ratio: 36.07

Dividend Yield: 3.24%

Payout Ratio: 60.44%

Profit Margin: 18.82%

Total Cash: $9.55 billion

Total Debt: $38.09 billion

I’ve recently written about Merck (MRK) announcing their dividend increase and also said ABBV looks more attractive as a holding compared to MRK. Looking at the financials, ABBV trades at a lower multiple, has a better drug pipeline, better margins, a safer dividend, and more room for dividend growth. But you compare your own figures. The risk in ABBV would be with the excitement surrounding its late stage drugs, if some of those drugs do not get final approval, there could be a volatile ride. However, that is the risk trade off involved. With a pretty deep pipeline, even with a few rejections, all it takes is that one approval to have a new hit on it’s hands and drive the price further.

For shareholders looking for the combined history of ABT and ABBV post spinoff, here you go:

The Value of $10,000 Invested Long Term

ABBV officially starting trading on its own on January 2, 2013 and opened at $34.92.  Say you invested $10,000 in ABBV at that time, you would have picked up 286 shares (rounded down).  Holding onto those shares, as of 2/16/18, at the current closing price of $118.60, you would have a position worth $33,919.60, giving you a return of 239%.

During that time frame (through Q1 2018), you would have received $3097.38 in dividends, or just under 31% of your initial purchase back.  Adding in dividends, we get a total return of 270%.  Dividends added 31% extra return for you during the 5 year period.  The crazy thing, the dividend growth story isn’t done here.

 

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