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AbbVie Inc. (ABBV) is a global pharmaceutical company with a particular focus on immunology and oncology.
With a corporate history that can be traced back to 1888, AbbVie is now a $190 billion (by market cap) pharmaceutical behemoth that employs 48,000 people.
AbbVie sells its products in more than 175 countries.
Humira, an immunosuppressive medication, is by far their largest and most important product, accounting for approximately 43% of FY 2020 revenue. This drug had net revenue of nearly $20 billion last fiscal year.
Humira has been both a blessing and a curse for AbbVie. Much more of the former than the latter to date, but that could be changing soon.
On one hand, it’s been a total blockbuster. It’s the best-selling drug in the world.
On the other hand, it represents an outsized percentage of total revenue. Biosimilar competition now threatens to severely harm the company’s future earnings. The dreaded “patent cliff” is coming, with Humira’s patent protection expired in Europe and expiring in 2023 in the US.
Understanding this, AbbVie has gone out of their way to be proactive. They’ve attempted to protect the business through licensing deals, additional patents, R&D spending, and a massive acquisition.
Regarding that last point, in 2020, AbbVie completed its $63 billion acquisition of Allergan PLC. This was a transformative acquisition which instantly and significantly expanded and diversified the combined product portfolio.
AbbVie’s stock has recently corrected. The FDA announced on September 1st that AbbVie’s drug Rinvoq would require a new and updated warning label. The stock is now down more than 10% from its late August high. This pullback is partly why I’m featuring the stock today.
Investing in a major pharmaceutical company is largely a bet on favorable demographic trends.
You’re betting on the continuation of what’s already been playing out for many years. The world is growing larger, older, and richer.
A larger pool of older people who have more capital is almost a straight line to greater demand for, and access to, top-notch therapeutics.
This bodes well for AbbVie’s ability to grow its profit and dividend for the foreseeable future and beyond.
As it stands now, AbbVie has increased its dividend for nine consecutive years.
However, that short track record belies the company’s true dividend growth heritage.
AbbVie is actually a Dividend Aristocrat. That’s because of the multi-decade dividend growth track record that was built up when they were a part of legacy company Abbott Laboratories (ABT).
Abbott Laboratories spun off AbbVie in 2013. That explains this newer, shorter track record. But make no mistake about it: AbbVie’s dividend growth pedigree is of the highest quality.
The five-year dividend growth rate of 18.5% is rather incredible, especially when you think about how this is a dividend that’s really been growing for decades.
However, the most recent dividend increase was a more down-to-earth 10.2%.
But this is still more than enough dividend growth when you consider that the stock yields 4.9%.
Morningstar rates ABBV as a 3-star stock, with a fair value estimate of $108.00.
CFRA rates ABBV as a 3-star “HOLD”, with a 12-month target price of $125.00.
I came out slightly high this time. Averaging the three numbers out gives us a final valuation of $123.17, which would indicate the stock is possibly 15% undervalued.
Bottom line: AbbVie Inc. (ABBV) is a high-quality pharmaceutical company that owns the best-selling drug in the entire world. With a market-smashing yield near 5%, a moderate payout ratio, a dividend growth legacy that dates back decades, double-digit long-term dividend growth, and the potential that shares are 15% undervalued, this is a Dividend Aristocrat on sale for dividend growth investors.
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LEGAL DISCLAIMER: Please consult with a licensed investment professional before investing any of your money. Never invest in a security or idea featured on this channel unless you can afford to lose your entire investment. If your money is not FDIC insured, it may decline in value. Jason is not a licensed financial advisor, tax professional, or stockbroker and he does not purport to be. The links above may include affiliate commissions paid to the owners of Dividends and Income and help support this channel.
