Dividend Aristocrats

AbbVie Stock, a 48 Year Dividend Aristocrat

AbbVie Stock is a member of the elite S&P 500 Dividend Aristocrats; these are stocks that have consistently raised dividends for a minimum of 25 years without missing even one. AbbVie was a spin-off from Abbott Laboratories in January 2013.

Abbott Labs is a giant pharmaceutical corporation that has consecutively raised its dividend for 48 years in a row. AbbVie’s new management intends to continue this tradition.

The company last raised its dividend by 10%  in January 2020 from $1.07 to $1.18 per share.

In this article, we review AbbVie’s business operations, latest financial results, management outlook, dividend growth history and AbbVie Stock’s performance versus the S&P 500.

Table of Contents

This article is broken down in to sections, feel free to jump to the area that interests you.

Business Synopsis

AbbVie develops and sells medicines and therapies that treat some of the world’s deadliest infections including chronic autoimmune diseases like rheumatology, oncology including blood cancer, hepatitis C, neurological disorders including Parkinson’s disease, thyroid abnormalities, cystic fibrosis and more.

The company’s top selling drug is Humira which accounted for 61% of all revenues in 2018. It is approved to treat autoimmune diseases including rheumatoid arthritis, Crohn’s disease, psoriasis, colitis and more.

Since AbbVie is losing its exclusive right to sell Humira in international markets as of 4th Quarter, 2018, it will lose some market share due to competitors flooding the market with alternatives. However, management believes in Humira’s strong branding with doctors as well as continued market growth for this kind of drug.

Total sales for this product are expected to bring in $21 in revenues for 2020 as it is the most widely prescribed front-line autoimmune prescription.

Humira Drug Annual Revenues

Having recognized loss of exclusivity, AbbVie’s management has embarked on a mission to diversify its revenue sources and strengthen its product portfolio.

Currently, the Hematological products portfolio including Imbruvica and Venclexta are a $4 billion franchise expected to grow to $9 billion by the year 2025.

Also, AbbVie’s next generation immunology products including Upadacitinib and Risankizumab are expected to grow to $10 billion in sales by 2025.

AbbVie Drugs Revenues

Management also states non-Humira product revenues are expected to grow to $35 billion by 2025, up from the current estimated $21 billion in 2020.

Revenue Analysis and Share Buybacks

For full year 2018, AbbVie generated $32.8 billion in worldwide sales and earned an operating income of $6.4 billion, implying a 19.5% operating profit margin. Revenues grew 16.3% year over year from 2017’s total revenues of $28.2 billion.

Trading on the New York Stock Exchange, AbbVie has a market capitalization of $120 billion and pays a 5.83% dividend yield. This is over 400 basis points higher than the yield provided by the S&P 500 index at 1.8% and the S&P Health Care Sector (XLV).

Since spinning off from Abbott Labs in 2013, AbbVie has grown revenues at 11.7% compounded annual growth rate (CAGR) which is a phenomenal growth rate. Adjusted net revenues have grown from $18.8 billion in 2013 to $32.8 billion in 2018.

Attached screenshot shows this revenue growth as well as adjusted earnings per share growing at a 20% compounded annual growth rate (CAGR).

The company has grown revenues by acquiring other companies. In May 2015, AbbVie acquired Pharmacyclics for $20.8 billion, an acquisition that in our view was very poor because Pharmacyclics generated only $730 million in revenue and was not a profitable enterprise.

In June 2016, AbbVie acquired Stemcentrx for $6.4 billion. This deal has turned sour as the company has had to take a $4 billion impairment charge relating to Stemcentrx’s intangible assets, also known as “Goodwill.”

AbbVie Stock Financial Summary

Growth Outlook

In 3rd Quarter, 2019 earnings results, AbbVie reported revenues of $8.479 billion which grew 3% year over year. Sales for its flagship product Humira grew 9.6% in the US due to patent exclusivity and dropped 33.5% internationally due to biosimilar competition.

AbbVie’s hematologic oncology products fared much better bringing in net revenues of $1.478 billion, a 38.3% year over year growth. Some of the top selling drugs in this portfolio are Global IMBRUVICA at $1.257 billion and growing 29.3% year over year and Global VENCLEXTA bring in $221 million in revenues.

Richard Gonzalez, CEO of AbbVie comments on the quarter results saying, “”Strong performance from our Immunology and Hematologic Oncology portfolios led our growth this quarter. We are also making excellent progress with several key strategic priorities, including the recent launch of our two new immunology therapies – Rinvoq and Skyrizi – both of which are off to an impressive start, as well as continued progress toward the completion of our planned acquisition of Allergan.”

AbbVie & Allergan Merger Update

On June 25th, 2019, AbbVie announced its intention to buy Allergan for $63 billion. To mitigate the impact of losing exclusivity for marketing Humira in the United States as of 2023, the company is buying Allergan to grow its revenues and create recurring and stable cash flows.

By acquiring Allergan, AbbVie will now be the fourth largest pharmaceutical company with annual revenues of $49 billion, just behind Pfizer, Roche and Johnson and Johnson. The combined companies are expected to generate $19 billion in operating cash flows for 2018. As a comparison, Johnson & Johnson generated $22 billion in operating cash flows in 2018.

AbbVie Allergan New Company Metrics

Management has also made a commitment to reduce the company’s debt by $15 billion to $18 billion by 2021 and maintain a Baa2/BBB credit rating or better. We are concerned about the company’s high debt load of $36 billlion in 2018 financial statements. With this debt reduction plan, we feel better about the company’s finances.

With Allergan’s acquisition, AbbVie plans to take the second top spot in revenue growth in the high single digits while the company’s peers operating in the health care sector have an average compounded annual revenue growth rate of 3.1%.

Dividend Growth History

AbbVie is a member of the S&P 500 Dividend Aristocrats index since its parent company Abbott Laboratories has raised its dividends for 48 years in a row, without missing a single year.

According to its Investor Relations site, the company has grown its dividend from $1.60 per share in 2013 to $4.28 in 2019. This represents a compounded annual growth rate (CAGR) of 17.8% which is truly stunning.

Chart below shows AbbVie’s dividend growth history. You can see a nice steep uptrend in the company’s dividend growth.

AbbVie Stock Dividend Growth History

Below chart shows year over year growth in AbbVie’s dividend since 2013. The company rewarded shareholders with a stunning 40% dividend raise in 2018.

Dividend Payout Ratio

Lets calculate the the dividend payout ratio for AbbVie Stock. Dividend Payout Ratio measures how much of a company’s free cash flow is paid out in the form of dividends.

Free cash flow is the cash a company generates from its daily operating activities minus capital expenditures like investing in new plants or equipment.

Free cash flow is calculated from the statement of cash flows, and is not artificially modified using accounting rules or non-cash expenses like depreciation, amortization, fair value revaluations, etc.

In its 2018 annual report, the company states cash from operations equals $13.4 billion while capital expenses totaled $638 million

Free Cash Flow = Cash from Operations – Capital Expenditures

= $13.4 billion – $638 million

Free Cash Flow = $12.76 billion

Dividends Paid in 2018 = $5.6 billion

Dividend Payout Ratio = Total Dividends Paid / Free Cash Flow

= $5.6 billion / $12.76 billion

Dividend Payout Ratio = 44%

A dividend payout ratio of 44% is excellent because it leaves plenty of cash flow for future dividend raises. AbbVie’s dividend growth rate over the last 6 years is 17%+ which is why the market has rewarded AbbVie Stock with high growth.

Valuation and Long Term Performance

AbbVie Stock has grown from $34 in January 2013 to $81 as of January 2020. This rise is at a compounded annual growth rate (CAGR) of almost 15.5% which is just spectacular!

Analysts expect AbbVie to earn $8.92 net income per share for full year 2019. Using the closing price of $81 as of January 31st, 2020, AbbVie Stock trades at a forward price to earnings ratio of just 9 times earnings. This is ridiculously cheap as the S&P 500 Health Care Sector (XLV) trades at 16 times earnings.

Executive Summary

Here is what we like and don’t like about AbbVie Stock.

Likes

  • Consistent dividend growth for 48 years, making this a Dividend Aristocrat.
  • Superb 20% annual dividend growth rate over last 5 years.
  • Dividend payout ratio of 44% which leaves room for future dividend growth, smart acquisitions and share repurchases.
  • Cheap valuation of 9 times forward 2019 earnings, making this a compelling stock to buy.
  • High dividend yield of 5.83%.
  • Acquisition of Allergan making AbbVie one of the top 5 pharmaceutical companies in the world.
  • Management’s commitment to reduce debt by $15 to $18 billion by 2021 and maintain a Baa2/BBB credit rating or better.

Dislikes

  • Loss of exclusivity for Humira in the United States as of 2023.
  • Declining sales of Humira in Europe and International markets due to biosimilar competition.
Market Capitalization $120 Billion
Dividend Yield 5.83%
Forward PE Ratio 9 times earnings
Dividend Growth (5 Year Avg.) 20%
Dividend Payout Ratio 44%
EPS Growth (5 Year Avg.) 7.6%
2018 Revenues $32.8 Billion
Gross Margin 77%
Net Margin 18.9%

AbbVie Stock Ex-Dividend Dates

Record Declared Payable Amount Type
1.18 U.S. Currency
Total dividends in 2020: 1.18
1.07 U.S. Currency
1.07 U.S. Currency
1.07 U.S. Currency
1.07 U.S. Currency
Total dividends in 2019: 4.28
0.96 U.S. Currency
0.96 U.S. Currency
0.96 U.S. Currency
0.71 U.S. Currency
Total dividends in 2018: 3.59

AbbVie Stock Price

The most recent price for AbbVie Stock can be found by going to the company’s Investor Relations website and clicking on “Stock Information.”

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