This week’s Dividend King is a bit of a surprise. It spent the first three months of 2022 ignoring the rest of the market and soared from $135 to $175. Eventually, the market got to it. The market considered the last two quarterly earnings announcements to be underwhelming, and the price has come nearly all the way back down. I’m very excited about this. Last week I mentioned that the Utility sector was overpriced on the whole, but I found one utility out of six that was attractively priced, Black Hills Corporation [BKH]. The same can be said of the Health Care sector. There are four Dividend Kings in the Health Care sector as of the time of this writing. Three of them seem to be a bit above their fair value. This isn’t a surprise.
When inflation runs hot and money gets tight, people think twice about pulling the trigger on getting a new mattress or taking a vacation. But the demand for certain services is inelastic. Consumer staples, utilities, and health care services are must-haves. Investors migrate to companies in these sectors as the economy slows down or enters a recession. It’s the smart thing to do. The Dividend King of the Week is really more of a Prince. It is the offspring of another Dividend King, Abbott Laboratories [ABT]. So, get your knees oiled, get your waist oiled – you’re going to be doing an awful lot of bowing . . . to Abbvie Inc [ABBV].
Abbvie Inc.
I think of Abbvie as ‘the little prince’ (‘u principinu’ in Sicilian), a spin-off from the much older Abbott Laboratories in early 2013. Both companies became Kings this year. The powers that be must have declared that Abbvie should inherit the dividend increase streak of its parent, presumably because it was integral to its ability to pay increasing dividends over time. Nevertheless, ABBV has been impressive since the spin-off, and it is going to be an integral part of this portfolio, hopefully, for another 50 years.
Here is the profile from TD Ameritrade:
AbbVie Inc. (AbbVie) is a research-based biopharmaceutical company. The Company is engaged in research and development, manufacturing, commercialization and sale of medicines and therapies. AbbVie offers its products in various therapeutic categories, including Immunology products, which include Humira, Skyrizi and Rinvoq; Oncology products consists of Imbruvica and Venclexta; Aesthetics products include Botox Cosmetic, Juvederm Collection and other aesthetics; Neuroscience products, such as Botox Therapeutic, Vraylar, Duopa and Duodopa, and Ubrelvy; Eye care products consists of Lumigan, Alphagan and Restasis; Women’s health products include Lo Loestrin, Orilissa and other women’s health; and Other key products, which includes Mavyret, Creon, Lupron, Linzess and Synthroid. The Company’s products are sold worldwide directly to wholesalers, distributors, government agencies, health care facilities and independent retailers from AbbVie-owned distribution centers and public warehouses.
Who hasn’t seen commercials for some of these drugs? What drug has led the world in total sales every year since 2012? Humira. Now, Humira’s patent expires in 2023 and it isn’t hard to find commentary discussing the limitations to future growth that lie ahead. However, ABBV has a very fertile research and development department. And Abbvie knows how to market and extend the use of its products. Recently, it secured approvals to expand the use of Skyrizi and Rinvoq. Skyrizi is now approved for Crohn’s in the U.S. and Rinvoq for ulcerative colitis in Europe.
The Details
Data as of 2022-08-6
| Name | Abbvie Inc |
| Ticker | ABBV |
| Website | Investor Relations |
| Sector | Health Care |
| Dividend Streak | 50 years |
| Last Price | $138.04 |
| Div Amt (quarterly) | $1.41 |
| Ann Dividend | $5.64 |
| Last Ann Div Inc | 9.3% |
| Dividend Yield | 4.1% |
| Payout Ratio (ttm) | 41.2% |
| Beta (5-yr, mon) | 0.68 |
| P/E Ratio (ttm) | 10.48 |
| Margin of Safety | 20% |
On July 29th, Abbvie announced non-GAAP earnings of $3.37 per share, missing estimates by $0.05. Of course, the market was unkind and ABBV has fallen 8% in the six days since. The P/E Ratio of 10.48 has 20% upside to the historical 9-year average of 12.58 and it is fair to expect some reversion to the mean. This is a great opportunity to get ABBV at a yield of just over 4%. The dividend increases have been slowing down from the 5-year average annualized growth rate of 17%, but the payout ratio remains low enough to support continued growth in the dividend. Further, the $3.37 EPS that the market found so disappointing, is its record highest earnings for a quarter.
I have set up a market order this evening to purchase 7 shares of ABBV on Monday.