The quest to find undervalued dividend stocks to buy in this HOT STOCK MARKET continues. The S&P 500 continues to trend higher and set record highs, even though we’ve had a few down days recently. Despite the record highs, I will always continue to search for undervalued dividend stocks to buy. We have been covring stocks like crazy on our YouTube Channel. Now though, it was time to take out our pencil and paper and write about a dividend stock in my portfolio. Let’s answer a simple question. Is AbbVie a dividend stock to buy?
About Abbvie
Let’s get some background about AbbVie before we dive into the numbers. At the beginning of 2013, Abbott Labs (ABT) spun-off AbbVie (ABBV). At this time, a dividend star was born. AbbVie retained all of the big name brands. Their brand portfolio includes Humira, Imbruvica, Mavret, and an army of other popular pharmaceutical brands. They may not be household consumer names, but they are prescribed regularly and are well known to medical professionals.
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AbbVie has not sat still since its spun-off though. The company isn’t a dinosaur that will only carry forward the spun-off brands. In an effort to diversify away from Humira, which accounted for a huge percentage of its revenue, the company announced a major acquisiition of Allergan that closed in 2020. The acquisition was expensive, totaling $63 billion. However, it allowed the company to add name brands such as Botox and Juvederm to its brand portfolio.
The company is now well position to continue strong growth and dominate its niches in the crowded pharmeceutical market. The company’s stock price has reacted accordingly. The company’s stock price has soared since the acquisition closed on May 8, 2020. Now, as of August 19, 2021 close, the company is trading over $117 per share.
AbbVie Recent Earnings Release
AbbVie released earnings at the end of July. Reading through the results, it was very, very encouraging. To start, the company’s top line continues strong growth rates. AbbVie’s second quarter net revenues were nearly $14 billion, a staggering 33.9% compared to the same period last year. You read that right. 33.9%. Insane, right?
Looking at the numbers, you start to see why their acquisition was so important. Humira’s sales growth, while strong, was only 15.1% compared to the same period. Clearly, the diversification of revenue streams is working, as the company’s revenue growth has becomeless dependent on Humira.
The growth wasn’t only reflected in the top line. The company’s bottom line growth was just as strong. The company’s adjusted quarterly diluted EPS earnings grew 32.9% compared to last year. Top line, and bottom line growth that exceeded over 30%…sign me up!
Lastly, I don’t want to leave out the good news about the company’s earnings outlook. The company raised its diluted EPS outlook as well. The range increased to $12.52 – $12.62 from $12.37 – $12.57. Overall, I was really liking the positive news AbbVie delivered to us shareholders!
Dividend Diplomats Dividend Stock Screener
Let’s start diving into the numbers. To evaluate if AbbVie is an undervalued dividend stock, we will run the company through the Dividend Diplomats Dividend Stock Screener. We use 3 SIMPLE metrics to evaluate every dividend stock. The goal of our stock screener is to identify if a stock is an undervalued dividend growth stock to buy.
Watch: Our Simple, 3 Step Stock Screener
Here is a rundown of the 3 metrics of our stock screener:
1.) Price to Earnings Ratio Less than the S&P 500. Currently, the S&P 500 is trading at a P/E Ratio of 34.37X. Historically, forward earnings are between 20X and 25X.
2.) Dividend Payout Ratio Less than 60% (Although we think a perfect payout ratio is 40% – 60%). The payout ratio measures the safety of the dividend, ensuring that the company can continue growing its dividend during good times and bad. That’s why it is a critical metric in our stock screener that we must evaluate!
Read: Dividend Aristocrats with a PERFECT Dividend Payout Ratio
3.) History of Increasing Dividends. We review this metric by reviewing the company’s five-year average dividend growth rate and dividend increase history. Since we are long term investors, it is important that a company increases its dividend consistently!
Bonus: Dividend Yield. We like to also throw in a bonus metric to our dividend stock analysis.
How Does AbbVie Perform in Our Stock Screener?
For this analysis, we will use Abbive’s stock price $117.93 (8/19/21 close). Analysts are projecting forward EPS of $12.65 per share. The company’s annual dividend is $5.20 per share. Now that we have the inputs for our analysis, let’s dive into the results.
1.) Price to Earnings Ratio: 9.3x. Woah. Below 10X. AbbVie is trading at a HUGE discount compared to the market. That is compared to their historical and forward P/E ratios cited above.
2.) Dividend Payout Ratio: 41.1%. Perfect. Falls right in our perfect dividend payout ratio range. AbbVie has plenty of room to continue growing its dividend going forward.
3.) History of Increasing Dividends: AbbVie has increased its dividend every year since the spin-off. Its predecessor company, Abbott Labs, is a Dividend Aristocrat. While the company is not an Aristocrat, the fact that the previous entity has a strong history of incresaing its dividend AND the fact that AbbVie has increased its dividend every year since the spin-off indicates to me that the company has a strong dividend growth history.
Read: Who & What are Dividend Aristocrats?
So what about the company’s dividend growth rate? Surely management has a strong growth rate based on their strong EPS growth. AbbVie’s 5 year average dividend growth rate is a staggering 18.35%. Phenominal.
4.) Dividend Yield: 4.4%. The company’s dividend yield is VERY strong compared to the market.
Conclusion
The results of our stock screener were staggering. Their P/E ratio is below 10. Further, the company’s dividend yield is over 4% and they have a perfect dividend payout ratio. On top of it all, the dividend growth history is great. 4 MASSIVE check marks for each metric we evaluated.
The company’s strong brand, strong revenue and earnings growth, and strong performance in our stock brainer easily answer my initial question of the article. Yes, AbbVie is a stock to buy at the company’s current stock price. I would not be shocked if I added to my AbbVie position before the end of the month!
What do you think about AbbVie? Do you consider it undervalued and a dividend stock to buy? Are you as positive about the company’s strong growth as I am?
Bert
I love ABBV. Was my top holding until JNJ recently surged past it by a tiny bit. Not adding to it right now as it’s a high single digit weighting already. Grateful to have purchased most of my shares below $90. Hopefully it stays a good value until I can add some more.
ABBV remains high on my watchlist. I got about a month before I am fully loaded to buy more stocks and much could change, but I would like to buy more shares. Your analysis shows just how good it is. 🙂
Nice article! ABBV is a dividend stock that seems to check every box. It’s hard to go wrong with a safe and market-crushing yield, as well as a fundamentally healthy business at a cheap valuation.
Hi Bert
Very interesting read on AbbVie.
It reminds me a bit Swiss Pharma giants Novartis and Roche. Have been shareholder for almost a decade, both increased their dividends for over 30 years. AbbVie is a spin-off. And Novartis and Roche made spin-offs that became hugely strong businesses themselves. Like Givaudan, Alcon, Syngenta (which lateron was bought by a competitor), Basilea etc. Someone having bought stocks of Roche and Novartis thirty years ago would now sit on a several holding positions and seeing an ever increasing dividend income stream. Even create intergenerational wealth.
Same with Abbott Labs and AbbVie. I mean the economic moat is huge. Very well run businesses. Such companies are the perfect position for us dividend growth investors.
Cheers