Dividend Aristocrats Part 47: AbbVie Inc (ABBV)

How Is AbbVie a Dividend Aristocrat?

You may be wondering how AbbVie is a Dividend Aristocrat if it is so risky. If a company has paid increasing dividends for 25+ years, hasn’t it already proven itself?

In general, yes. But…

AbbVie hasn’t paid increasing dividends for 25 or more consecutive years.

The company was spun-off from Abbott Laboratories (ABT) – which has now paid increasing dividends for 44 consecutive years.

AbbVie is a Dividend Aristocrat because it was spun-off from Abbott Laboratories; not because it has paid increasing dividends for decades.

To be fair, AbbVie has paid increasing dividends every year since it was created on January 1^st, 2013.

The company’s qualitative risks combined with its shorter dividend history (post spin-off) are why I call AbbVie the riskiest Dividend Aristocrat.

Your Money Matters. Invest for Safety First.

There’s nothing wrong with investing in AbbVie.

In fact, I believe it to have favorable risk adjusted return potential.

If Humira fears are overblown and the company somehow continues to grow its Humira business (as well as other drugs), AbbVie stock could easily trade for an adjusted price-to-earnings ratio of 20 to 25 – around a 55% premium to current prices.  Even if Humira losses 70% of its revenue over the next 5 years, AbbVie could very well be around as profitable as it is now – if it manages to grow its drug portfolio as management projects.

On the other hand, the company’s future is uncertain…

– How far will Humira sales fall when patents begin to expire?

– How effective will the company’s management be at growing non-Humira sales?

AbbVie Inc (NYSE:ABBV) makes an interesting value investment at current prices.

It does not, however, have the level of safety that dividend growth investors who rely on steadily increasing dividend income count on.

Dividend growth investors in the health care sector should take a closer look at Johnson & Johnson (JNJ) and Abbott Laboratories (ABT) – AbbVie’s parent company.

Both businesses have a much higher probability of paying rising dividends for years out than AbbVie.

Disclosure: None