When we recommended pharmaceutical giant AbbVie (ABBV) this past June, it had recently raised its quarterly dividend. It had raised it by an inspiring amount, asserts growth and income expert Ian Wyatt, editor of High Yield Wealth.
The quarterly dividend was increased to $0.96 per share from $0.71, a 35% increase. Few investors would expect another dividend increase to soon follow such a remunerative increase.
Then, AbbVie announced the unexpected — it declared its next quarterly dividend. Rather than receive $0.96 per share, investors will receive $1.07 per share. Investors will be paid a dividend 50% higher entering 2019 compared to when they entered 2018.
AbbVie is speaking to investors through its dividend. Many investors have a problem comprehending the message. AbbVie shares are down 25% since the previous dividend increase. A higher dividend combined with a lower share price has lifted AbbVie’s dividend yield to 5.4%.
Many investors suffer from myopia. They see only AbbVie’s anti-inflammatory therapy Humira, the best-selling drug on the planet. Humira’s patent exclusivity is ending in Europe. Humira U.S. patents related to manufacturing Humira will end in 2022.
The political background exacerbates the pessimism. Investors are worried that drug-pricing proposals espoused by President Trump will retard sales growth.
Investors need to look beyond the tip of their nose to get the message. Blue sky resides on the horizon. Humira’s broad popularity will enable it to deflect legislative hits and new competition abroad. The brand still commands sufficient monopoly protection.
Investors should also note that AbbVie is no one-trick pony. Humira accounted for 62% of AbbVie sales in the third quarter. That’s down from 65% of sales in the year-ago- quarater.
The percentage drop isn’t the result of lower sales (Humira sales were up 9% year over year), it’s the result of the rise of new therapies. Imbruvica, a new cancer therapy, posted a 41% year-over-year revenue gain.
AbbVie recently increased its earnings estimates. It expects adjusted EPS to post between $7.90 and $7.92. The previous outlook was EPS to post between $7.76 to $7.86.
The midpoint of this revised guidance range reflects year-over-year growth of 41.3%. AbbVie’s dividend is speaking to investors. We think the message is worth heeding.
