AbbVie: This High-Yield Dividend Aristocrat Is A Buy

Big Pharma giant AbbVie Inc. (ABBV) has not performed well, but investors could soon be rewarded for their patience. Shares of the company have declined 16% year-to-date, while the broader S&P 500 Index has gained 15% so far in 2019. Investors are worried about the company’s future once its flagship drug Humira faces biosimilar competition in the United States.

But AbbVie has invested heavily in R&D, and as a result, has a robust pipeline of products to fuel its future growth. In the meantime, the stock is significantly undervalued, and also has a high dividend yield of 5.6%. AbbVie is one of the best dividend stocks right now.

Future Investments Should Pay Dividends

The poor performance of AbbVie stock can be attributed to weak investor sentiment. AbbVie’s biggest product Humira, which represented more than half the company’s 2018 revenue, recent started facing biosimilar competition in Europe. This has already had a significant impact on AbbVie, as international sales of Humira fell more than 20% in the 2019 first quarter. Investors fear that a similar impact could be felt in 2023 when Humira will face biosimilar competition in the United States.

Fortunately, the company has invested heavily in new product development. AbbVie’s research and development expense exceeded $10 billion in 2018. Even after excluding a $5.1 billion intangible asset impairment charge related to acquired in-process R&D as part of the 2016 Stemcentrx acquisition, the company still allocated over $5 billion to R&D last year alone. As a result, AbbVie’s biggest growth catalysts moving forward are hematologic oncology and next-generation immunology.

AbbVie expects revenue of all non-Humira products to total more than $16 billion by 2020 and $35 billion by 2025. This will be more than enough to offset potential declines for Humira. For 2019, AbbVie expects 11% growth in adjusted EPS, at the midpoint of guidance.

Compelling Value And Income

AbbVie has a long runway of growth over the next several years, thanks to its R&D investments. In the meantime, investors have an attractive buying opportunity, as the stock is undervalued and has a high dividend yield.

Based on expected earnings-per-share of ~$8.78 for 2019, AbbVie stock has a low price to earnings ratio of 9. AbbVie’s low valuation multiple is an indication of the investor uncertainty, but the stock could be a bargain if the company continues to grow EPS. AbbVie stock could easily see its P/E ratio expand to 13, which would result in a significantly rising share price.

In addition, the stock has a current dividend yield of 5.6%, a very high yield that is more than double the average yield of the S&P 500 Index. With a forecasted dividend payout ratio of ~50% for 2019, AbbVie’s dividend is secure, with room for future increases. AbbVie is a dividend growth company. Going back to its parent company Abbott Laboratories (ABT), AbbVie is a member of the Dividend Aristocrats, a list of 57 stocks with at least 25 years of annual dividend increases.

AbbVie has promising growth catalysts ahead, the stock is cheap, and it has a high dividend yield of 5.6%. These qualities make AbbVie stock an attractive investment for value and income investors alike.