I am always on the lookout for dividend-paying companies to add to my portfolio. As 2020 comes to an end, I am overhauling my dividend watchlist for 2021. I found 2 companies I want to add to the income-producing side of my portfolio. This is where I take an attitude of if it doesn't have cash flow or pay a dividend, just say no. Currently, I am adding AbbVie (ABBV), and VICI Properties (VICI) to my 2021 dividend watchlist. I am sure there will be more but ABBV and VICI are catching my eye based on their financials, dividend aspects, and overall business operations. If you're looking to add some yield in 2021, these companies could be worth a look.
Currently, I don't own big pharma stocks and this is a sector I would like to diversify into. ABBV is a specialty biopharmaceutical company that has a vast portfolio of medicines with therapeutic focuses on immunology, oncology, neuroscience, eye care, virology, and aesthetics. ABBV has a huge pipeline of medicines across the Phase 1, 2, 3 and submitted stages which should generate large amounts of revenue and cash flow in the future. For example, in immunology, ABBV-154 and ABBV-3373 are for rheumatoid arthritis and they are in Phase 2. In neuroscience, ABBV has ABBV-8E12 in Phase 2 and AL002 and AL003 in Phase 1 for Alzheimer's disease while having ABBV-951 in Phase 3 for Parkinson's disease. The oncology division at ABBV has many promising medicines in the pipeline from ABBV-011 for small cell lung cancer in Phase 1 to Veliparib in stage 3 for ovarian cancer, breast cancer, and lung cancer.
ABBV's financials are aces in my book. For the trailing twelve months (TTM), ABBV has generated $40.65 billion in revenue, $28 billion in gross profit, and $7.38 billion in net income. ABBV also generates huge amounts of cash from operations with a TTM of $16 billion. ABBV has generated $4.57 in diluted EPS and with a current share price of $103.26, this makes their P/E ratio 22.59. ABBV is a $182 billion company and its year over year (YoY) revenue growth is 23.68% with a compound annual growth rate (CAGR) of 14.23% for the past 3 years. ABBV EBITDA has a YoY growth rate of 17.66% and a 3-year CAGR in EBITDA of 16.33%. ABBV's cash from operations has grown by 20.15% YoY and by 127.37% in the past five years. Between their pipeline of drugs and current financials, I think a P/E of 22.59 is cheap for ABBV and there is more than enough firepower to maintain its growth rates.
ABBV has an impressive dividend and this could be one of the best dividend ideas for 2021. ABBV pays a dividend of $5.20 per share which is a yield of 5.04%. Their payout ratio is 49.58% and ABBV has increased its dividend on an annual basis for the past 7 years. ABBV has a 5-year growth rate on its dividend of 20.86%. ABBV has such a low payout ratio that even if the business was stagnant, it could continue to provide annual increases to its dividend without breaking the bank. I believe ABBV will continue to increase its dividend on an annual basis for quite some time as their financials indicate they are still in a growth phase and their payout ratio is just under 50%. This is one of the most secure 5% yields you will find from any stock with room to grow.
Source: (Seeking Alpha)
COVID-19 has crushed many industries, and what I call the experience industry made up of hotels, casinos, restaurants, bars, and entertainment has been one of the hardest hit. Eventually, we will move past COVID-19, and even if it is a new normal for a while, people are not going to just sit in their homes for the next five years. I believe there is pent up demand for experiences as many Americans miss going to their favorite restaurant, going to the movies or to the casino. I love VICI's business model as they operate a triple-net lease REIT. A triple net-lease is when the tenant or lessee agrees to pay all of the expenses of the property including the real estate taxes, building insurance, and maintenance. VICI is a national REIT that operates 28 gaming facilities and four golf courses. Across their portfolio, VICI has over 47 million square feet of owned space which includes 28 gaming facilities, 200+ restaurants, bars & clubs, 18,000 hotel rooms, 50+ retail outlets, 4 golf courses, and 34 acres of undeveloped land in Las Vegas. This may sound like a horrible idea given the current climate but with 100% of their rent collected in 2020 and the vaccine starting to be rolled out, I think VICI is an interesting opportunity.
(Source: VICI Investor Presentation)
Of VICI's 47 million square feet, over 2 million square feet is casino space. VICI actually owns the properties Caesars Entertainment (CZR) operates as 83% of VICI's revenue comes from CZR. Penn National Gaming (PENN) is also one of the operators which lease space from VICI with 6% of their revenue coming from PENN. Some of the crown jewels in VICI's portfolio consist of Caesars Palace & Harrah's in Las Vegas and Caesars & Harrah's in Atlantic City. Since I live in NYC, I can see how investing in real estate, which is primarily dependent on experiences, could seem a bit risky as NYC has seen this area of business decimated over time. Regional gaming has survived through many cycles including recessions, the mortgage crisis, and the financial crisis.
We got through what I believe has been the worst of the pandemic and VICI maintained 100% occupancy and collected 100% of the rent which is the most important statistic to me. Their average lease term is 34.7 years and there are huge hurdles in the forms of barriers to entry to operate in the gaming space due to legislative and regulatory controls. The current casino operations such as CZR and PENN have very large moats to fend off new competitors which becomes an added benefit for VICI.
(Source: VICI Investor Presentation)
VICI has a PE ratio of 18.1 as their diluted earnings for the TTM is $1.43 and shares are currently $25.88. I like what I am seeing with VICI's numbers. VICI has seen revenue growth of 21.8% YoY, net income growth of 26.7% YoY, and its cash from operations grew 15% YoY. Considering how 2020 has been for the experience industry growth across these areas is a strong signal for me. In the TTM, VICI has generated $1.09 billion in revenue, $702.3 million in net income, and $784.5 million in cash from operations. Given their portfolio of assets and the 100% rent payment status through 2020, I think it would be safe to speculate that VICI will continue to operate at a close to perfect rent collection status in the future.
VICI currently pays a dividend of $1.32 per share which is a current yield of 5.1%. In Q3 2018, VICI increased the dividend by 9.5%, then, in Q3 of 2019, it was raised by 3.5% and just recently in Q3 of 2020, VICI gave shareholders another 10.9% increase. VICI has a payout ratio of 78.73% which should allow this trend to continue for years to come. For the sector in which VICI operates in especially with the business nature of their tenants, 100% rent collection in addition to a 10.9% dividend increase in 2020 is nothing short of remarkable. VICI is establishing itself as a solid dividend company with a track record of increases for shareholders.
(Source: Seeking Alpha)
If you're looking for new dividend ideas, both ABBV and VICI generate a 5% dividend yield with more than enough room for future increases. After reviewing both companies' business operations and financials, both ABBV and VICI classify as SWANs (Sleep Well At Night) in my book for dividend-producing companies. I am not finding red flags, and my research indicates that the track records for dividend increases will stay intact. Of the two, I believe ABBV has more share appreciation potential than VICI but both generate a 5% yield and should be considered for a dividend income portfolio.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.
Additional disclosure: Disclaimer: I am not an investment advisor or professional. This article is my own personal opinion and is not meant to be a recommendation of the purchase or sale of stock. Investors should conduct their own research before investing to see if the companies discussed in this article fits into their portfolio parameters