Bert’s Recent Purchase – AbbVie (ABBV)

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.

  1. Price to Earnings – 9.17X – Using a  price with a forward earning projection of $8.75 for 2019 (from 18 analysts).
  2. 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.
  3. Dividend Yield – 5.33% –  This is assuming a $80.28/share price point and an annual dividend of $4.28.
  4. 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?

Bert

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15 thoughts on “Bert’s Recent Purchase – AbbVie (ABBV)

  1. Hey Bert,

    Great article. I’d echo all your points and for the same reason I picked up 24 shares of ABBV as well to average down from my November 2018 purchase. The news on Imbruvica was unfortunate, but the company has a good pipeline overall and is well managed.

    Take care,
    Ryan

    • Ryan,

      Thank you very much! Looks like we have made the exact same purchases of ABBV over time, including our initial purchases and the share amounts after. The pipeline is getting stronger over time, and I also know there will be setbacks every once and a while.

      Bert

  2. Bert,
    That’s a solid way to boost dividend income by almost a Benjamin. I haven’t purchased ABBV since November of last year, but its one of my top 10 positions in both portfolio percentage and dividend income percentage. Keep hustling and making every dollar count!

  3. Nice buy Bert! I just received my first dividend payment from ABBV and I am looking to add on to my ABBV position in the near future. Great job adding nearly $100 in forward annual dividends! Keep it up! 🙂

  4. I have been adding to ABBV too over recent months as the price has fallen. The only thing that bothers me about the company/stock is the concentration of revenue related to Humira as you mention. Thanks for the review and the metrics. Always good to cross check my thinking with your good work here. Tom

    • Very nice Tom, that’s too kind! Yes, there is concentration, but that’s why I dove a little into the pipeline and felt better about the company as a whole. Hopefully we enjoy the ride with this one.

      Bert

  5. There has been so much negativity about this stock recently. Feels like that this company is one step away from bankruptcy:) Anyways I’m not joining this fear train and keep adding to my position. Now I own 30 shares but won’t mind to add a couple more. Valuation, quality metrics, etc. look solid.
    Cheers
    -SF

  6. Help Bert,

    Great buy!
    I have kopjes at ABBV lately and did my own analysis. And I liked what I saw. So I’m thinking about buying Some

    Cheers

    Pollie

  7. A little late to the game here, but I recently initiated a position in ABBV as well. Nice yield, and a solid choice!

    I’m just starting out, but it quickly added $184 of income for me. Sweet, sweet, “I didn’t have to get out of bed to earn that $184 in the future” income!

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