On most occasions, us Diplomats are on the same page with stock purchases. Since we are always sharing our thoughts, ideas, and analyses, chances are that if one Diplomat purchases a stock, there is a good chance the other one did as well. This happened when the two of us initiated a position in ABBV in the fourth quarter and it happened once again in January when ABBV’s price fell through the floor. Lanny wrote out his purchase of ABBV and WRK this week, and now it is my turn. Here is why I added to ABBV!
Back in the fourth quarter, I had initiated a position in ABBV. It was only 13 shares with an average price of ~$85/share and it far from a full position. That’s why when the company’s stock price fell below $80/share subsequent to their earnings release, my eyes opened wide and I initiated a transfer to my brokerage account.
Reading the earnings release, the fourth quarter had some mixed results. The company reported a 28% growth in earnings after adjusting for the one-time impairment charge, double-digit percent revenue growth compared to last year, a $5b increase to their share buyback program, and a 2019 earnings guidance that assumes 10% growth at the midpoint of the range (adjusted EPS of $8.65/share to $8.75).
Of course there were some negatives that outweighed the positives, hence the decrease in stock price. When you think ABBV, you think Humira, and that was one of the headlining items this earnings season. This is the line from the release that many focused on: “In the U.S., Humira sales grew 9.1 percent in the quarter. Internationally, Humira sales declined 14.8 percent operationally due to direct biosimilar competition in certain international markets.” To add to this, in the earnings call, it was stated that global Humira sales are expected to decrease 30% on an operational basis internationally. This is due to the direct competition to Humira that now exists in Europe. Reading articles about this, sales were expected to decline. However, those covering the company were not expected the percent decrease to be as large as it was.
Despite the slowdown in Humira, one of the reasons I optimistic about ABBV is the company’s pipeline. Humira made up a large chunk of the company’s sales in the past. Management’s strategy has been to diversify their holdings and the company’s drug pipeline continues to grow. The strength in the pipeline was highlighted in both the earnings release and earnings call. Sure, there is some bias to this and I understand that when assessing the company. Since I’m not an expert, I found this article discussing the company’s growing pipeline and echoing my sentiment.
Dividend Diplomats Stock SCreener
Lanny did a lot of the heavy lifting on this in his article. When I ran the our infamous stock screener I had the exact same results. So I will just quickly summarize the metrics below.
- Price to Earnings – 9.17X – Using a price with a forward earning projection of $8.75 for 2019 (from 18 analysts).
- Dividend Growth History – Solid – Lanny highlighted how the company’s current increase is 6 years and the company’s recent dividend increase was 11%. Further, before the spin-off, the consolidated ABT company was a Dividend Aristocrat. Clearly, there is a history of increasing their dividend.
- Dividend Yield – 5.33% – This is assuming a $80.28/share price point and an annual dividend of $4.28.
- Payout Ratio – 49% – Assuming forward earnings of $8.75/share and a dividend of $4.28 per year. Lanny used the phrase “A perfect payout ratio” and I must agree with his sentiment.
Summary – The Stock Purchase
In total, I added 23 shares of ABBV and $98.44 in forward dividend income accordingly. Of course, those that read my January dividend income summary would have already own this! Now, my position in ABBV totals 35 shares and I will receive $149.80 in dividend income from the company. At the moment, I am content with my position and will only look to add if the price continues to fall!
What are your thoughts about my purchase? Did you purchase ABBV like Lanny and I? Do you have an opinion on the company’s Humira sales in Europe?