Finding Reliable 3%+ Dividends in Today’s Market: AbbVie Inc (ABBV)

The second strategy ABBV is pursuing is to acquire or develop new pharmaceuticals to eventually replace the revenue and earnings generated by Humira. In this strategy, ABBV has eight late stage products under development or being deployed that ABBV estimates are worth in the range of $25B to $30B peak annual revenue.

This compares very favorably with Humira’s peak annual revenue estimate of $18B. These new products are shown in the chart below with the height of each block representing the relative revenue contribution.

Source:  ABBV Investor Website

While an investment in ABBV carries some risk due to Humira’s heavy contribution to ABBV’s revenue and earnings, ABBV appears to be on top of the issue with two aggressive and potentially accretive strategies going forward.

AbbVie’s Past Financial Performance

ABBV has performed well in the short time since its spinoff from ABT.  That should be expected as ABT is also a solid pharmaceutical company in its own right. In the three years ABBV has been independent, it has grown its revenue, earnings, and dividends paid.

The four charts below show those metrics as well as the dividend payout ratio for the last three years.

Source:  Author

Potential investors should ask why ABBV’s earnings per share dropped in the 4th quarter of 2014.  ABBV attempted a buyout of Shire (SHPG) in late 2014. The merger talks were terminated in October 2014 following the US Treasury’s rewrite (reinterpretation) of the tax regulations governing the merger.

This unfortunate event cost ABBV a $2.2B breakup fee paid to SHPG.  This also caused the dividend payout ratio to spike in the 4th quarter of 2014. Other than this event, ABBV’s financial performance has been excellent though we only have 3.5 years of performance from which to judge.

A look at ABBV’s dividend growth shows the company has been sharing the wealth with its shareholders. Since the spinoff, ABBV’s dividend has grown at an average annual rate of 9.3%. The chart below show the dividend performance.

Source:  Author

If we look at only the last 3 years, the dividend has grown by an average annual rate of 11.1%. Not too shabby for a company that sports a yield of 3.8%.