AbbVie (ABBV): Dividend Safety Pressured By Humira

AbbVie (ABBV) is popular in the high yield and dividend growth stock community. The current dividend yield is about 4.9% and the payout ratio is roughly 42% (as of this writing). The dividend has been raised for nine consecutive years since the spinout from Abbott Laboratories (ABT) making the stock a Dividend Challenger. The dividend safety is solid at the moment but will be pressured by the eventual loss of exclusivity and patent protection for HUMIRA in the U.S. and ensuing biosimilar competition. Why is this a risk to AbbVie’s dividend? HUMIRA provides AbbVie with nearly 40% of total revenue and over 50% of earnings due to it high margins. When one product provides such a high percentage of total revenue and earnings, I view it as a risk for dividend safety. Granted, AbbVie’s management is trying to manage for the risk of impending competition by acquiring Allergan and also recent drug launches. However, the concentration of revenue and earnings in one product is still a risk. In addition, net debt and the leverage ratio is up significantly since the Allergan acquisition. Overall, it is worthwhile to take a deep dive into the dividend safety of AbbVie.

AbbVie - Dividend Safety Pressured By Humira

Overview of AbbVie

AbbVie was formed in 2013 when the company was spun out of Abbot Laboratories. This spin out in effect created one company focused on R&D based drugs and one company focused on medical devices and diagnostics. Since the spinout the stock prices of both companies have risen dramatically so this can be viewed as successful from the perspective of unlocking value. Today, AbbVie has through growth of HUMIRA and a series of acquisitions become one of the largest R&D based pharma companies in the U.S. and world. Major acquisitions include Pharmacylcics in 2015 for $21 billion, Stemcentrix in 2016 for $9.6 billion, and Allergan in 2020 for $63 billion.

AbbVie has strengths in immunology, oncology, neuroscience, and aesthetics, but also operates in eye care, women’s health, and other markets. Its top seller is HUMIRA (immunology), which is also the top-selling drug globally (nearly $20 billion in sales in 2020), generating nearly 40% of AbbVie’s sales and over half of the company’s profits. HUMIRA is backed with 23 years of clinical data and has 16 approved indications worldwide. Other leading products include IMBRUVICA (blood cancers), SKYRIZI (immunology), VENCLEXTA (lymphoma leukemia), BOTOX (cosmetic and neuroscience), MAVYRET (hepatitis C), and CREON (pancreatic enzyme replacement). 

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Source: J.P. Morgan Healthcare Conference Presentation

Additionally, AbbVie has the No. 1 market position in Aesthetics for numerous therapies including BOTOX (66% market share), JUVEDERM (46% market share), Coolsculpting (67% market share), Natrelle (54% market share), and AlloDerm (51% market share). Total companywide revenue was approximately $45,784 million in 2020.

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Source: J.P. Morgan Healthcare Conference Presentation

AbbVie Stock Dividend and Growth

AbbVie stock has paid a dividend since its spin out from Abbot Laboratories in 2013. The company is a Dividend Challenger on the basis of nine consecutive years of annual dividend growth. But AbbVie stock is also considered a Dividend Aristocrat since it inherited Abbot’s dividend history. Most large-cap pharma companies pay a dividend that grows over time and AbbVie is no exception. The company provides medications that are needed by its customers for the most part to improve health. The combination of relatively high yield, dividend growth, and dividend safety has made the stock very popular as an income and dividend growth stock. For context, AbbVie has over 214 thousand followers on Seeking Alpha illustrating its popularity.

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