As a dividend growth investor, I'm always looking for deals that hit at the perfect time. When I say this I mean stocks in half decent companies that are currently trading at a discount and who are also just about to issue a dividend. I like to refer to it as the perfect storm. If you can get all three things - a good company, a great dividend, and get in before the ex-dividend date, you have got the perfect storm. This causes me to always be watching the upcoming ex-dividend dates. This also helps to narrow down the playing field so that I'm not having to keep my eye on too many companies all at once. This week my eyes were drawn to the drug manufacturer, AbbVie Inc.(NYSE:ABBV).
As a company that currently has a quickly encroaching ex-dividend date of April 13th, it immediately qualifies under my system of checks to be reviewed. First things first, let's review the dividends. ABBV has been issuing a growing dividend for the last 43 years and this now equates to an annual total payout of $2.28/share. This is maintained with a payout ratio of only 45.4% and can be broken down into a 3.87% dividend yield. This is more than enough to satiate any dividend growth portfolio. As a dividend growth investor, I like to make sure that all of the companies that I add into my portfolio are of a 2.5% yield or higher. I sometimes break this tread but at this point in time I have stayed mostly true to it with my current holdings. I believe this is important as without a steadily raising percentage of payout in dividends, I feel that a good amount of growth portfolios fall off in relation to other investments that may yield greater long term results in capital gains.
I then move on to price. ABBV is currently trading at $58.93/share while I write this article. This calculates to a 17.7% discount off of the 52 week high that ABBV has seen in recent weeks (high/low $45.45-71.60). With this being said, the price seems just about fair now for my standards. Even though it's not trading as low as it can be, it's still very much in a reasonable range of price. Although one could see waiting for another couple weeks to see if the price drops further as markets see some fluctuation, I personally would not feel cheated if I decided to drop some of my money into ABBV right now for the current price. I stress how fair this price is because ABBV already sees a market cap of 95.93B with an average volume of 8,731,670 and it also trades at a current P/E of 18.95. If you have been following me for the past couple months, you know that this is trading right within the range that I would like to see. The range I would like to see for drug manufacturers is between ten and twenty (as with most sectors). Any higher and it would appear overpriced in my mind and any lower and it would seem like it was headed for a crash.
Now that the stock has been confirmed to trade at a fair price and the dividend payments have been confirmed as sustainable, it's time to move onto a comparison of the competitors. After all, there is seldom a point in investing in a company that is constantly outpaced by competitors. Just like I would not want to place my money on a brand new car when I could spend the same amount on another new car that shows better speed and reliability, I hold my investments to the same standards. Currently ABBV brings in 22.86B in revenue while competitor Pfizer Inc. (NYSE:PFE) brings in more than double at a total revenue of 48.85B and secondary competitor Merck & Co. Inc. (NYSE:MRK) brings in 39.50B. Profits are not everything however. Even though Pfizer Inc. (PFE) brings in more than double in profits than ABBV, they are only trading at an EPS of 1.11 in relation to ABBV's 3.13 EPS. This would seem to suggest that although PFE brings in more profits, they don't necessarily correlate with better results per share issued. This rules out PFE as a competitor for my money because they don't bring as much value. What about Merck & Co. Inc. (MRK) then? MRK seems to be right ahead of PFE but only barely. Where PFE trades at an EPS of 1.11, MRK only trades at a slightly larger EPS of 1.56. It seems then that ABBV wins out over its competitors in terms of profitability per share. Obviously, profitabilityis not the only thing that should be compared in order to rule out competitors but in a large amount of other categories, ABBV seems to outpace them as well. I refer of course to P/E ratios and dividend yield. PFE is currently very overpriced in my opinion as their P/E ratio is well over the desired limit of 10-20. They currently trade at a P/E ratio of 29.46. Other competitor MRK trades even higher at a P/E ratio of 35.53. Unfortunately, this is not even outweighed by a sizable dividend. MRK only issues a current yield of 3.43% and PFE issues a competitive 3.91%. All three companies then appear to be right in the same range of dividend yields but when I can grab a company that makes far greater per share than the others in the same 3-4% yield range, I will put my bet on ABBV to outlast them in the long run.
ABBV is clearly profitable, issues a great dividend yield, and it seems to be a better value than their current competitors but what kind of outlook does it have for the future? This is an important question to have answered because numbers now could mean nothing for the future if sights are not out far enough forward. Where a dollar today may say the company is worth something, the same dollar tomorrow may go elsewhere if arrangements are not made to be profitable in the future as well. Unfortunately, we have to wait for the first quarter results which will be released on April 28th so we can't get the plan moving forward directly after the quarter results but I will try to piece what I believe they have as prospects moving forward without that. It would seem that ABBV's future will like most drug manufacturers be found in the results of the medical products they push. One of the most notable would be one of their key products, Humira which just received praise for its ability to combat Crohn's disease from the CHMP (European Committee for Medicinal Products for Human Use) . This should bring in a great amount of income in the future as Crohn's is as the article points out, a growing issue for children worldwide. As there is no cure for Crohn's currently, the drug should be well received in the community on a continual basis until something can be done on a more permanent standpoint against the effects that those who suffer from it experience. I feel that this is important as ABBV has to take steps each and every quarter to ensure that their products are always the leading edge to ensure profits. Also, providing a working product that does what it is supposed to do can give great press to the company as a whole by being attached to the name brand. Inversely, if the product fails, the company could see definite downturn with the bad press but it does not appear that any such news should be coming from Humira in the foreseeable future. The drug can also see other uses for patients who require aid with their rheumatoid arthritis or ankylosing spondylitis. This gives it a utility as a drug that not only works to combat one ailment but also works on others. I think that moving forward, with positive news coming out about one of the company's key products, the stock could also see a bump in revenue and position them well for the future.
In conclusion, I feel ABBV is a great addition to any dividend growth portfolio. The stock is fairly priced at this time and the ex-dividend date is coming very soon. In addition to these factors, they hold themselves very well against their competitors and they seem to have a very positive outlook moving forward with their product lines such as Humira. I currently do not hold any ABBV in my portfolio but I would be looking to add it into my portfolio very soon. I can see myself waiting however to see if the price drops just a little bit more to remain even more competitive as markets weather any upcoming storms.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ABBV over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.