Editor’s note: This column is part of InvestorPlace.com’s Best Stocks for 2021 contest. Bob Ciura’s pick for the contest is AbbVie Inc. (NYSE:ABBV) stock.
The stock market has something to offer every investor. There are stocks with high dividend yields, although these usually offer less growth through capital appreciation. There are growth stocks that could generate superior share price gains, but growth stocks typically have elevated valuations and low dividend yields. One such company that comes to mind that offers this type of opportunity is AbbVie Inc. (NYSE:ABBV) and ABBV stock.
Every now and then, investors will come across a unique stock that offers dividends and growth. These rare finds have the potential for outsized returns, through their high dividend yields and their potential for share price appreciation. With that in mind, AbbVie has all the makings of a high-dividend stock that also offers growth at a reasonable valuation — which is why it’s my top pick for 2022.
What makes ABBV stock this way? Let’s dive in and take a closer look.
Business Overview
AbbVie is a pharmaceutical company that was spun off from Abbott Laboratories (NYSE:ABT) in 2013. AbbVie was spun off so that it could operate independently, with its own dedicated management team. According to AbbVie, it generated annual revenue and adjusted earnings per share (EPS) growth of 13.5% and 18.8%, respectively, from 2013-2020.
The impressive growth over the past several years was due primarily to its flagship multi-purpose drug Humira. However, Humira’s patent expired in the international markets, which has led to a deep slowdown in growth abroad. Humira faces patent expiration in the U.S. in 2023.
Patent expirations are a leading risk factor for pharmaceutical companies. The entrance of generic and biosimilar products often causes branded pharmaceuticals to lose their pricing power. However, the good news is that AbbVie has prepared for this by investing heavily in new products and acquisitions.
Growth Catalysts for ABBV Stock
Overall, AbbVie has invested significant resources in its research and development (R&D) platform to restock its pipeline. In fact, AbbVie’s R&D expense totaled $6.56 billion in 2020. The result of this investment is that AbbVie has multiple growth opportunities to replace Humira, particularly in the therapeutic areas of immunology, hematology and neuroscience.
Next, AbbVie has pursued growth through acquisitions. Its biggest acquisition was the $63 billion takeover of Allergan. Allergan’s flagship product is Botox, which diversified AbbVie’s portfolio with exposure to global aesthetics, a high-growth market. For example, in the third quarter, global net revenues from AbbVie’s aesthetics portfolio increased 29% operationally to $1.25 billion.
Additionally, AbbVie raised its guidance and now expects adjusted EPS in a range of $12.63 to $12.67 for 2021. At the midpoint of guidance, AbbVie’s adjusted EPS is expected to rise by roughly 20% this year — making 2021 another year of strong growth for ABBV stock.
Attractive Stock For Income And Total Returns
Moreover, shareholders benefit from this growth with a high dividend payout and regular dividend increases.
Not only is AbbVie generating strong growth, but the company also pays a hefty dividend with strong dividend raises each year. AbbVie announced a 2022 dividend increase of 8.5%. The company’s forward annualized dividend payout of $5.64 per share represents a current yield of 4.3%. This is a very strong yield, considering the average yield of the S&P 500 index is around 1.4%.
Furthermore, AbbVie is a dividend growth company. Going back to its days as a subsidiary of Abbott, AbbVie has increased its dividend for over 40-consecutive years. As a result, it is a member of the Dividend Aristocrats index, a group of stocks in the S&P 500 with more than 25-consecutive years of dividend growth.
Lastly, despite shares of ABBV stock rising 21% year-to-date (YTD), the stock still has a reasonable valuation. Based on expected EPS of $12.65 for 2021, AbbVie stock trades for a P/E of about 9. With such a low P/E ratio, AbbVie has lots of appeal for value investors. There is plenty of room for AbbVie’s P/E multiple to expand, which would further boost shareholder returns in the form of a rising stock price.
Final Thoughts on ABBV Stock
Putting it all together, AbbVie is a rare example of a growth company with a reasonable valuation and a high dividend yield. This is a unique find in the stock market, and it means AbbVie could generate superior returns through dividends and capital gains.
Furthermore, AbbVie has a positive outlook for 2022, as the company continues to diversify its portfolio and invest for growth. As a result, AbbVie is my top pick for the best stocks for 2022.
On the date of publication, Bob Ciura was LONG ABBV stock. He did not have (either directly or indirectly) any positions in the other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.
