Illinois-based pharmaceutical giant AbbVie Inc. (ABBV) has increased its dividend payout for nearly 49 consecutive years. The company’s dividend has grown  at a CAGR of 22.8% over the past three years. Moreover, strong sales of its Humira drug have helped the stock gain 15% over the past six months.

ABBV’s current quarterly dividend cumulates to an annual dividend of $5.20, which translates into a dividend yield of 4.78%. This compares to the company’s four-year average yield of 4.34%. Over the past six years, ABBV has issued more in  dividends (as measured in absolute U.S. dollars) than 97.2% of U.S. stocks that  pay dividends.

The company’s transformative Allergan acquisition along with its broad portfolio of diversified growth assets have helped the stock to gain 25.5% over the past year. As ABBV’s other drugs — such as cancer drugs Imbruvica and Venclexta — continue to boost revenue growth, ABBV is expected to generate more than sufficient cash flow to continue its dividend growth.

We think the following factors could help ABBV maintain its dividend growth and deliver solid total returns this year:

Acquisition of Cypris Medical

ABBV’s Allergan Aesthetics has entered into a warrant agreement to exercise an option to acquire Cypris Medical, including the company’s Xact device. This should create a steady  cash flow for the company.

Sustainable Growth Opportunities

The European Commission  recently approved ABBV’s Rinvoq drug for the treatment of adults with active psoriatic arthritis, which could lead to significant future gains for the company.  In fact, its top-selling Humira drug  generated global net revenues of $5.15 billion in the last reported quarter, increasing 4.8% year-over-year. As ABBV  continues to expand its portfolio of drugs and receives approval for others, it  is expected to generate significant cash flow. This should not only support the company’s generous dividends but also  allow the company to grab growth opportunities.

Strong Financials

ABBV’s net revenue has increased 59.2% on a reported basis to $13.86 billion for the fourth quarter ended December 31, 2020. The company’s global net revenues from its  neuroscience portfolio were $1.389 billion, representing an increase of more than 100%. Its gross margin ratio in the fourth quarter was 66.2%, while its operating margin was 27.1%.

ABBV’s revenues have increased at a CAGR of 17.5% over the past three years, while its EBITDA has grown at a CAGR of 22.3% over this period.

Favorable Revenue and EPS Growth Outlook

Analysts expect ABBV’s EPS to rise 26.9% for the quarter ending June 30, 2021. Its EPS is expected to grow at a rate of 4.8% per annum over the next five years. A consensus revenue estimate of $13.55 billion for the next quarter represents a 34.4% improvement year-over-year.

Analyst Price Target Indicates Potential Upside

ABBV is currently trading at $108.73, but analysts expect it to hit $112.05 in the near term, representing a potential 3.1% upside.

Favorable POWR Ratings

ABBV has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ABBV has a Growth Grade of B. This is consistent with analysts’ expectations that its revenue and EPS will increase.

Moreover, ABBV has a Quality Grade of B. Among other favorable qualitative aspects, the company’s trailing-12-month gross profit margin of 69.2% compares favorably with the industry average of 55.9%. It also has a grade of B for Value, which is consistent  with the stock’s forward price/sales ratio of 3.48x, which is 63.4% lower than the industry average of 9.51x. In the 239-stock, Medical – Pharmaceuticals industry, ABBV is currently ranked #9.

In addition to the POWR Ratings grades I have just highlighted, you can see the ABBV ratings for Stability, Sentiment, and Momentum here.

There are several other stocks in the Medical – Pharmaceuticals industry with an overall POWR Rating of A. Click here to see them.

Bottom Line

In addition to a long history of increasing dividend payments, ABBV has a solid underlying business. While its blood cancer drugs continue to gain strong momentum, sales are also picking up for its newly approved drugs like Rinvoq. Growing demand for its top-selling drug and its continuous investments in research and development should drive the stock higher in the coming months.

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ABBV shares were trading at $105.65 per share on Tuesday afternoon, down $1.19 (-1.11%). Year-to-date, ABBV has declined -0.25%, versus a 4.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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