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AbbVie Stock: Unparalleled Dividend Growth-Yield Combo
Stock Analysis & Ideas

AbbVie Stock: Unparalleled Dividend Growth-Yield Combo

AbbVie (ABBV) is a biotechnology company specializing in producing and commercializing drugs for immunology, oncology, and virology.

The company was spun off by Abbott Laboratories (ABT) in 2013, though it has quickly grown into one of the most prominent players in the space. Last year, AbbVie acquired Allergan, resulting in an expanded pharma portfolio, while unlocking additional operational efficiencies.

Maintaining Abbot’s extended dividend track record faithfully, AbbVie is a member of the S&P Dividend Aristocrats Index, which comprises companies that have annually increased their dividend for a minimum of 25 consecutive years.

In fact, AbbVie has hiked its dividend for 49 consecutive years, while its dividend growth pace remains robust, on top of the stock featuring an above-average yield.

Combined with the company’s robust qualities, including growing and high-margin cash flows, AbbVie remains a fantastic dividend growth pick. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)

Dividend Growth Sustainability

AbbVie has not only been able to grow at a rapid pace following its Abbot spin-off, but its growth has also been impressively sustainable.

The company’s financials should keep enjoying positive tailwinds in the medium term as well. With Humira’s patent (Humira accounts for over 40% of AbbVie’s revenues) extended to 2034, the company has plenty of time to enrich its drug pipeline, and diversify its revenues.

Allergan’s acquisition should also assist in this endeavor, which will diminish the impact of the eventual rise in competition for Humira (which, keep in mind, is the world’s best-selling drug) later on.

For this reason, and, evidently, by management’s confident dividend hikes, EPS growth is likely to keep growing.

The company’s latest two DPS hikes were by 10.2% and 10.3%, respectively.

Attractive Valuation

Besides AbbVie’s compelling earnings and dividend growth prospects, its valuation multiple remains very attractive.

In fact, despite the risks, including AbbVie’s short-term dependence on Humira, it’s quite rare to see a stock offering AbbVie’s growth prospects at such a reasonable price.

Trading at a forward P/E of 8, AbbVie offers investors a juicy margin of safety in the medium term. Besides, the stock comes with a 4.8% yield attached.

Not only is this an above-average yield in the current environment, but considering the medium-term DPS growth prospects, and low payout ratio, AbbVie’s investment case is truly one of a kind.

As a cherry on top, AbbVie has a great history of stock buybacks, further boosting shareholder returns. In 2018, for instance, the company repurchased around $12 billion of its stock.

That was around 8% of its market cap at the time. While buybacks have been held back lately following the pandemic, they are more than likely to accelerate again moving forward.

Wall Street’s Take

Turning to Wall Street, AbbVie has a Strong Buy consensus rating, based on 10 Buys, two Holds, and zero Sells assigned in the past three months. At $128.33, the average AbbVie price target implies 17.4% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

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