AbbVie: The One to Make the Cut
08/04/2016 7:00 am EST
There are few bargains out, and even fewer when you narrow your focus to dividend payers. How few? Just 13: That's the number of stocks in the S&P 500 that offer an enticing yield at a reasonable price, asserts Ari Charney, editor of Income without Borders.
To be more precise, we looked for stocks that yield at least 3%, enjoy a consensus buy rating among Wall Street analysts, trade below consensus 12-month target prices, and whose P/E ratios are below their sector's average.
If we get a bit more stringent with our parameters by looking for stocks that trade 5% or more below their 12-month target prices, then just 10 remain.
And since we're risk-averse income investors, let's ditch any stocks that exhibit the sort of volatility that might keep us up at night.
Of the 10 stocks that made our second cut, just one has been less volatile than the broad market: the pharmaceutical company AbbVie Inc. (ABBV).
The $102 billion drug-maker, which was spun off from Abbott Laboratories (ABT) back in 2013, currently trades at a share price that's nearly double that of its market debut.
AbbVie has been no slouch on the dividend front either: The company has grown its dividend 12.5% annually over the past three years, for an annualized payout of $2.28 per share and a forward yield of 3.6%.
Equally impressive, analysts forecast the company will grow earnings per share 15.2% annually over the next five years. And they expect that growth to flow through to the dividend, which is projected to rise 7.9% annually over that same period.
Meanwhile, the stock trades at a P/E ratio of just 14.8, compared to 20 for the broad market and 40.2 for its sector.
The company currently has mostly bullish sentiment among Wall Street analysts, at 13 "buys,â€ eight "holds,â€ and one "sell.â€
The stock is not without risk. In fact, there's a biggie: AbbVie derives more than 60% of revenue from the rheumatoid arthritis drug, Humira. And this drug could start facing competition from generics when a key patent expires in December.
However, management is attempting to protect Humira with a different set of patents and the firm is aggressively working toward expanding its drug pipeline, particular with new cancer treatments; it has more than 50 active clinical-development programs.
Although AbbVie's exposure to Humira might make it a bit too risky for some income investors, its stock certainly offers a compelling value at current prices.
By Ari Charney, Editor of Income without Borders