Some folks like to buy a stock, sit back, and collect dividends over time. That’s a perfectly reasonable approach to owning shares of AbbVie (NYSE:ABBV) stock.
A forward annual dividend yield of 5.25% does, indeed, suggest that AbbVie is generous to its stockholders. And AbbVie’s average annual dividend increase of 21.75% over the past five years is quite impressive. Plus, the company offers a high dividend payout ratio of 51%.
But it’s not a great idea to just buy a company’s stock for the dividend payouts. That’s a factor, sure, but first and foremost you want to own a piece of a good company. After all, big dividends won’t provide much consolation if it’s a failing company with a plummeting share price.
Thankfully, you won’t likely have that problem with ABBV stock anytime soon. A recent acquisition made waves in the biopharmaceutical space and will enhance shareholder value for AbbVie. A bigger and more diverse company now, AbbVie’s prospects for the remainder of 2020 look bright.
Looking Beyond Humira
Humira, a drug designed to treat rheumatoid arthritis and other related conditions, has been a mainstay in AbbVie’s pharmaceutical product line for years. Some commentators might suggest that until recently, AbbVie’s business has been overly dependent on sales of Humira.
Admittedly, it’s not a terrible thing that Humira has been a sizable component of AbbVie’s business. Humira has been a serious moneymaker for the company over the years.
To give you an idea of how lucrative Humira is for the company, check the stats from the first quarter. During that time frame, sales of Humira amounted to $3.7 billion. That represents an increase of 13.7% when compared to the same quarter of the previous year.
Furthermore, AbbVie’s guidance expects full-year sales growth of 7% for Humira. So, why would the company be concerned about such a lucrative drug?
The problem is that AbbVie can’t rely on Humira’s profits forever. In Europe there are a number of biosimilar rivals ready to overtake Humira. Moreover, AbbVie’s patent protection for Humira in the U.S. will run out in 2023. That leaves the company exposed to cheaper knock-off drug alternatives.
Let’s Make a Deal
As often happens in the corporate world, AbbVie is demonstrating that bigger can, in fact, be better. An acquisition of epic proportions appears to the answer to the question of how AbbVie intends to diversify away from Humira.
In what’s likely the biopharmaceutical industry’s most important deal of the year, AbbVie recently closed its acquisition of Allergan. You might already be familiar with Allergan’s most famous product, Botox.
Some investors might wince at the thought of acquiring anything involved with elective aesthetic procedures. This class of procedures isn’t going to be very popular during a global pandemic.
Forward-looking investors will understand that the lockdowns and shelter-in-place mandates won’t last forever. The economy will reopen at some point, and the demand for elective procedures will recover.
Last year, 60% of AbbVie’s revenues came from sales of Humira. However, J.P. Morgan analyst Chris Schott predicts that due to the Allergan acquisition, AbbVie can reduce that number to 30% in 2022.
That’s still a couple of years away, but in the meantime shareholders can enjoy ABBV stock’s industry-competitive dividend payouts. Unlike some companies, AbbVie is likely to remain a generous dividend yielder throughout 2020.
And for value-focused investors, it’s a great time to consider starting a position in ABBV stock. Schott predicts that the share price could reach $105 by the year’s end, and that’s not an unreasonable expectation at all.
The Final Word on ABBV Stock
Yes, you can consider ABBV stock a dividend leader in the biopharmaceutical space. But now that AbbVie’s ready to be much more than the company that brought you Humira, you can look beyond the dividend yield and stake a claim in a bona fide pharma-space leader.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.