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AbbVie Remains A Buy

Mar. 01, 2021 1:26 PM ETAbbVie Inc. (ABBV)47 Comments
Kody's Dividends profile picture
Kody's Dividends


  • AbbVie's respective adjusted diluted EPS and FCF payout ratios of 44.7% and 46.0% strike a great balance between deleveraging and rewarding shareholders with generous dividend increases.
  • Even with COVID headwinds, AbbVie generated 3.3% YoY operational revenue growth and 18.1% YoY adjusted diluted EPS growth in 2020.
  • Despite a 12% runup in AbbVie compared to the 8% increase in the S&P 500 since I last covered the stock, AbbVie is still firmly undervalued.
  • Between its 4.8% yield, 5.0-6.0% annual earnings growth, and 1.1% annual valuation multiple expansion, AbbVie remains positioned to meet my 10% annual total return requirement over the next decade.

While 2020 was fraught with revenue declines and earnings plunges for many businesses around the world, there were still a selective few that managed to deliver revenue and earnings growth in 2020.

One business that produced strong operating and financial results in a challenging operating environment was AbbVie (NYSE:ABBV).

As I'll discuss below since I covered AbbVie last November, AbbVie's dividend payout ratios in 2020 were highly sustainable, AbbVie generated impressive revenue and earnings growth in 2020, and the stock is trading at a solid discount, which is why I still believe that shares of AbbVie are a buy at this time.

AbbVie's Dividend Remained Safe In 2020

When comparing AbbVie's current 4.83% yield to the S&P 500's 1.53% yield, it appears as though the market doesn't view AbbVie's dividend as sustainable over the long-term. I will dispel the belief that AbbVie's dividend is unsustainable in the long-term by examining AbbVie's adjusted diluted EPS and FCF payout ratios during 2020.

After all, if a dividend proves itself to be safe in even a challenging operating year such as 2020, it can be argued that the dividend will remain safe in just about any operating environment short of a zombie apocalypse.

AbbVie generated $10.56 in adjusted diluted EPS during 2020 against $4.72 in dividends/share paid out during that time, for an adjusted diluted EPS payout ratio of 44.7%.

While this is a respectable payout ratio, it's even better than AbbVie's 47.9% adjusted diluted EPS payout ratio in 2019 (page 9 of AbbVie's Q4 2020 earnings press release), which suggests contrary to the market's belief, the dividend is growing safer with each passing year.

Moving to FCF, AbbVie generated $17.588 billion in operating cash flow against $798 million in capital expenditures (according to data sourced from page 53 of AbbVie's recent 10-K

This article was written by

Kody's Dividends profile picture
Hi, my name is Kody. I run Kody's Dividends. As you might guess, this is a blog primarily documenting my journey towards financial independence using dividend growth investing as the means to transform the dream of financial independence into a reality.I am forever indebted to this community because it helped me transition from simply being an investor to being an analyst for The Motley Fool back in June 2021 under my real name of Kody Kester. As a display of my gratitude, I will still be writing one article a month for SA starting in July 2022.

Analyst’s Disclosure: I am/we are long ABBV. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (47)

Ferber profile picture
Thanks for your articles! I am a grateful follower.
Kody's Dividends profile picture
@Ferber My pleasure. I'm glad you find value in my articles!
ABBV well a very good company is a dog in the stock market.Had it for a year and up 8 points! That's after great reports and increasing profits.Do yourself a favor and invest in CNQ a premier Canadian Gas & Oil company paying a 7% dividend plus it's trading at around $33 or so and it's share price will rise 20%. I am selling mine and adding to my CNQ position.
@dg441 so you are saying you bought at the very top of the pre-pandemic...okay. Well if you thought it was good value then, why not double down during the pandemic. Many of us did. Your frown would be a smile if you did.

This seems more like troll to get investors in CNQ. I for one already have my O&G plays and those are PSX, VLO, ENB, and KMI. Oh and the CNQ divi is 4.64% not 7%. ha!
@kevn1111 sorry still a second rate stock.Rather invest in RIO TINTO and ride out the green metals surge not to mention their highest dividend in 132 years
@dg441 RIO could be good. Have not done any research. Dividend varies greatly and is semi-annually. Next ex-div date is not till August. Weird how you bounce from one stock to a different one. But metal stocks do likely become more and more important. US is in discussion with Europe to get a consortium together to not let China have the power they do in rare minerals, etc. So will go do some research. Just the divi is not dependable. It could be more, could be less, who knows. So for many retired this may not be a good investment.
I DRIP 5 shares a month and have for three years! Very long ABBV!
Kody's Dividends profile picture
@George V Thanks for the comment and congrats on building out a meaningful position in ABBV.
In 2023, when the patent for Humira expires, ABBV will lose the income stream that currently accounts for around 40% of it's cash flow. Take ABBV's share price and divide by two. That's a fair value price for the stock.

Disclaimer: Am long ABBV, but am looking for alternatives.
LookingAtStocks profile picture
@Yulayu Oh please...check out the myriad of ABBV articles on Seeking Alpha and other sites that dispute your claim....they have and will have an even more vibrant pipeline.
@LookingAtStocks Is vibrant a new synonym for cash-generating? Their best-selling, most-valuable product is going away in two years. I doubt the pipeline's capacity to fill the gap.
LookingAtStocks profile picture
@Yulayu Whatever....if you're here to bash ABBV, then just sell your shares, sleep well at night and buy some GME, ;o)
The COVID has slowed the testing of claims for Rinvoq for both Psoriasis and Psoriatic Arthritis. Humira, as you know, is cleared for both claims. However, it could be a year or longer before the dual claims can both be validated and maybe never. As a result, the notion that Skirizi and Rinvoq are going to mitigate the loss of Humira is likely going to fall way short of that goal, at least on the timetable outlined by management..
Rinvoq is not indicated for psoriasis and psoriatc arthritis- maybe you mean Skyrizi. Rinvoq is indicated for RA and potentially AD soon. Having said that, Im selling ABBV bc I agree that the pipeline products fall short of 20$ Billion/yr Humira peak revenues. Also toooooo much debt.
Kody's Dividends profile picture
@rbordogna378 Thanks for the comment.
Own it and will be waiting for a better entry point to add more. Once Covid is controlled and the country moves toward normalization the entire market could shift from those stocks that flourished during the crises to more value-oriented stocks. ABBV might begin to shine.
Kody's Dividends profile picture
@labman106 Thanks for commenting and I agree with your views regarding ABBV shining once we move toward normalization. Less than 9 times 2021's earnings for ABBV is too great of value for the markets to ignore forever.
ArtfulDodger profile picture
Excellent work, Kody. Thank you for putting forth math and reasoning rather than a load of charts. It's well worth the work and time for you to do that, and I for one appreciate it. For me the use of a passel of charts is shirking the real work that ought to be done to make a case for or against a stock.

Thanks again, the ArtfulDodger
Kody's Dividends profile picture
@ArtfulDodger Thanks for the kind words. I'm glad you enjoyed the article.
Abbvie will be a cash cow for a long time... Skirizi and Rinqov look promising
Skyrizi is a homerun. Rinvoq will fall short IMO
Kody's Dividends profile picture
@biospaceinvestor Thanks for the comment.
Kody's Dividends profile picture
@Marlboro-Man Thanks for commenting.
Shareholder friendly company ABBV, has a nice yield.
Kody's Dividends profile picture
@Money 29 Thanks for commenting and I couldn't agree more.
PghFundManagement profile picture
Thanks for the piece! I like the formulae used...I understand better with mathematical illustrations, thank you!
Kody's Dividends profile picture
@PghFundManagement My pleasure! I'm glad you found the piece useful.
I see you use a lot of TTM or historical info to derive FV. Obviously that infers that history will repeat itself. Why not use a DCF model? Obviously there is an upcoming hit to growth coming up due to Humira. How do you figure this impacts your models? I would think a DCF model with rates higher than today would provide another very important data point.

I do concur that ABBV is a very good stock for those investors that are about cashflow + opportunity for growth. I would say investors 40+ in age in general. I am 57 and retired thus it is a core position of 1,400 shares.  

Why do I say 40? Because prior to 40 it is about finding growth stocks to obtain alpha and build up your portfolio to allow you to retire early*. Obviously when ABBV contracted to the 60's it probably fit this profile, but no longer. In your 20's/30's it is about building that nestegg. Into your 40's it is still abut building but also preservation of capital. In your 50's it is more so but also about cashflow, especially if getting close to retirement. Some stocks fit both profiles. ie AVGO. I got in at $229 with a 5.5%+ divi. Not too many of these around though.

I have a two-prong approach. 1. Get passive income to exceed expenses by at least 20% (currently $80k so achieved, and goal to be $100k by end of '23 by finding additional strong safe payers/dividend growth/continue to allocate a bit more to dividend stocks as I age). 2. With other capital use it to continue to find outsized growth (ie I have been in 5G stocks AVGO, MRVL, QRVO, SWKS, QCOM) for alpha, with a small amount into a highflier or two for trades only. In and out quick. ie GRWG, PLTR, TSLA, SQ etc are all examples of trades I have been in.

* Retirement = CHOICE. Doesn't mean you have to stop working, if that is what makes a person happy. But it means you dont have to. It is your choice.

Good luck,

Patience and Discipline
@kevn1111 sounds like you have a nice retirement plan. I am 61 and also retired and I have significant holdings of AbbVie stock, 2500+ shares. I am fortunate to have a very nice pension so my goal is to leave a sizable nest egg to each of my kids and grandkids. Like you say, good luck!
@Coolmission6719 congrats on the pension. I am sure you earned it. No pension plan here, so on my own to make it work out. Still have too much in cash (19%). Put some to use during pandemic, but it is a good safety net for now*. In the meantime I try and and stay focused/discipline and continue to look for opportunities as well as areas that I think I can do better in. It is a job, even if I am retired.

ABBV is my 4th highest in mkt value behind AVGO, QCOM, and PRU. Rounding out my top 10 are SWKS, LMT, CVS, C, QRVO, ENB. C wasn't up there but it has been rising nicely.

*Would like to get into some real estate, but prices are too high and going higher. Too conservative to take a plunge into it. Will do it at some point when values drop, which I imagine will be when interest rates ramp up if the Fed ever believes in free market system vs artificially controlling rates. What I do know is there are lots of peaks and valleys in the stock market and more opportunities will come. Just cant panic, keep a level head, and find those opportunities.

Patience and Discipline
@kevn1111 "Obviously that infers that history will repeat [...]"
A speaker implies what they did not actually say.
A listener infers what they did not actually hear.
LookingAtStocks profile picture
Excellent article...Go ABBV!
Kody's Dividends profile picture
@LookingAtStocks Thanks for the comment and I'm pleased that you enjoyed the article.
MNVikingsFan profile picture
This is another very well written and comprehensive article! I also believe ABBV’s dividend is safe and the stock is undervalued. Long ABBV!
Kody's Dividends profile picture
@MNVikingsFan Thanks for the comment and I'm glad you found value in the article!
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