AbbVie: A Reliable Dividend King for Long-Term Investors

Why AbbVie is a Compelling Dividend Pick

Strong dividend payers can often serve as a stabilizing force in a well-diversified portfolio. Companies that consistently pay and raise their payouts over extended periods are typically lower-risk, well-established businesses with robust underlying operations.

However, this isn't always the case. Some companies may halt dividend hikes or even suspend their programs when faced with difficulties. Therefore, dividend seekers must carefully select stocks to add to their portfolios if they aim to maintain a steadily rising passive income stream over the long term. AbbVie, a leading healthcare company, presents itself as a promising option.

A Steady, Reliable Business

AbbVie is a pharmaceutical leader focused on developing and marketing innovative medicines. The pharmaceutical industry is inherently defensive: people require medication regardless of economic conditions. Even during recessions, physicians continue prescribing drugs, and patients continue purchasing them. AbbVie's portfolio spans multiple therapeutic areas, including immunology, oncology, neuroscience, eye care, and more.

Given that many of its therapies address serious, chronic, or life-threatening conditions, often requiring long-term prescriptions, AbbVie generates consistent revenue and profits, supporting its dividend program.

AbbVie Overcomes Challenges

Despite its stable business, AbbVie encounters headwinds. Like all drugmakers, AbbVie faces patent cliffs and clinical/regulatory setbacks. The company's past responses reveal the strength of its underlying business.

In 2023, AbbVie lost U.S. patent exclusivity for Humira, a key immunology medicine that was its largest growth driver and best-selling product. Although revenue and earnings initially declined, the company has rebounded and is trending upwards again.

Importantly, AbbVie maintained its dividend payouts throughout this period. Overcoming a major patent cliff requires planning and execution. AbbVie developed internal products like Rinvoq (an immunosuppressant) and licensed products from other drugmakers, including Rova-T (a cancer medicine) and Skyrizi (another immunology product). It also acquired Allergan for $63 billion in 2020, a significant strategic move.

How did these actions play out? Rova-T proved unsuccessful. However, Skyrizi and Rinvoq are now AbbVie's primary growth drivers. The Allergan acquisition diversified AbbVie's product lineup and pipeline, adding growth drivers such as Vraylar (an antipsychotic medicine) and its Botox franchise.

The Future Looks Promising

Skyrizi and Rinvoq should continue to grow sales well into the next decade, but what's AbbVie's strategy beyond that? History suggests the company will implement a similar strategy to navigate past the Humira patent cliff. AbbVie is already active, with recent licensing deals and acquisitions bolstering its pipeline.

AbbVie is entering the weight loss market through an agreement with Gubra A/S for GUB014295, an investigational weight management therapy. The deal involves an upfront payment of $350 million, with potential for an additional $1.9 billion in clinical milestones and future royalties on sales.

Additionally, AbbVie recently acquired Capstan Therapeutics, a company developing medicines for autoimmune diseases, for approximately $2.1 billion in cash. AbbVie also has a robust internal pipeline with numerous ongoing programs expected to yield new drug approvals and label expansions.

The Dividend is Secure

AbbVie boasts an impressive dividend track record, considering its time under Abbott Laboratories. Factoring that in, AbbVie is a Dividend King (having raised payouts for at least 50 consecutive years), with a current streak of 53 years.

Even beyond the Abbott legacy, the drugmaker has significantly increased its dividends since becoming an independent, publicly traded company in 2013. Furthermore, AbbVie's forward yield of 3% is attractive – notably higher than the S&P 500's average of around 1.3%.

Finally, the company's cash payout ratio remains reasonable at 61.8%. AbbVie's excellent dividend program, strong underlying operations, and ability to continually develop new medicines and overcome patent cliffs make it a compelling dividend pick for the long term.