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

Readers should note that the 2016 dividend value is based on trending out the first two quarters of the year.  Overall, AbbVie Inc (NYSE:ABBV) has been accommodating to its share holders and currently has an ongoing share buyback program to boost share value.  ABBV’s management is guiding for a 10% increase (range midpoint) in earnings-per-share for 2016 which should also translate into an increase in the dividend payout to shareholders for 2017.

The street thinks well of ABBV’s prospects.  Of the 22 analysts that follow ABBV, 14 rate ABBV a BUY, 1 rates ABBV as OUTPERFORM, 6 rate ABBV as a HOLD, and 1 rates ABBV a sell.  The analyst’s consensus 12 month price target for ABBV is $70.  With ABBV’s share price at $60 as of the writing of this article, that represents a 16.7% potential gain plus a 3.8% dividend yield along the way.

ABBV currently has a solid investment grade credit rating of A- from S&P with a stable outlook.  ABBV’s debt metrics are also very good.  ABBV’s 2015 annual report lists total debt at $31.3B and long term debt at $29.2B.

These are very large numbers but what we are interested in is whether ABBV is generating sufficient earnings to service that large debt load.  With EBITDA of $8.2B and total interest expense of $686M, ABBV’s EBITDA to Interest Expense ratio is a very healthy 12.  Anything over 8 is generally considered “good”.  Likewise, ABBV’s LT Debt to EBITDA ratio is a very reasonable 3.6.  A debt to EBITDA under 4 is generally considered “good”.

The bottom line is that ABBV’s balance sheet appears very solid and they should easily be able to service their existing debt with room to take on additional debt for potential acquisitions.

Final Thoughts and Closing

AbbVie Inc (NYSE:ABBV) at roughly $60/share appears to be fairly valued.

The company has a long dividend history of 44 consecutive years of dividend increases (including its time as part of Abbott Labs). This makes ABBV one of just 50 Dividend Aristocrats – S&P 500 stocks with 25+ years of consecutive dividend payments without a reduction.

With ABBV’s new product pipeline, continued defense of the Humira patents, ongoing share buyback program, and growing dividend, ABBV should provide patient investors with solid returns going forward.

With its solid balance sheet, shareholder friendly management, and good total return potential, ABBV offers investors a favorable risk/reward investment opportunity.

Note: This article is originally published by Dirk S. Leach on Sure Dividend.