Good Dividend Potential for AbbVie in a Tough Landscape

Damien Conover: Today we're talking about AbbVie. AbbVie is a stock that we think is both undervalued and well positioned with its dividend. Right now, the dividend yield is close to 5%, and in a landscape where it's difficult to get yield, we think AbbVie's yield is both secure and has potential for some modest growth over the next few years.

When we think about AbbVie, it's a stock that is trading from a price/earnings basis on a very low metric. It's close to 10 times earnings. And we think it's very secure with its earnings growth over the next three years. But the main reason why it's trading so low is it does have a massive patent loss coming up. In 2024 we think the Humira patent loss will put a lot of pressure on earnings, but from a dividend perspective, we still think AbbVie will be able to support its dividend in the 2024 time period.

Now at that time, we will see a dividend payout ratio go up to a little bit over 60%, which will weigh on the company's ability to pay the dividend. But nevertheless, we still think it's secure. And we think it's secure for three key reasons.

First off, we think there'll be continued growth of a lot of products outside of Humira. So currently marketed products that are really well positioned for further growth, in particular Imbruvica and Venclexta, both for blood cancers, look very well positioned for further growth.

Second reason we think the dividend is secure and growth potential looks likely is the pipeline. AbbVie's pipeline looks very well positioned. It has new drugs coming into immunology that are well-positioned, better than a lot of other drugs out there. In particular, we're looking at SKYRIZI to be a very important new drug in psoriasis.

And the third point why we like AbbVie, and we think that dividend is secure, is the recent acquisition of Allergan will diversify its product portfolio. So, unless there is something very substantially negative that hits Allergan, we think AbbVie's very well positioned. In particular we think Botox from Allergan is well positioned, both in the aesthetics market and in the therapeutic market. So that should drive further diversification that really enables AbbVie for solid growth over the next several years.