AbbVie (ABBV) is a repeat recommendation because of its attractive dividend, combined with its strong growth, observes Ben Reynolds, growth & income expert and editor of Sure Retirement.

Since AbbVie was spun off from former parent company Abbott Laboratories (ABT), it has generated excellent growth from its flagship product Humira, the world’s best-selling drug.

Humira revenue increased by 9% in the third-quarter. Other products exhibited strong growth as well, such as Imbruvica, which grew sales by 41%. Adjusted earnings-per-share of $2.14 increased 52% from the same quarter a year ago. AbbVie also lifted its guidance for 2018. The company expects 41% earnings growth for the full-year.

The major risk to AbbVie’s growth is patent loss for its major product Humira, which is facing competition in a number of countries. AbbVie has resorted to steep price cuts in Europe to fend off the competition.

In response, AbbVie has invested heavily in its product pipeline to continue generating growth. To that end, AbbVie’s R&D expenses increased 16% in 2017, to $4.8 billion. These investments should pay off, as AbbVie expects non-Humira sales to grow from about $9.6 billion in 2017, to more than $16 billion in 2020, and over $35 billion in 2025.

We expect AbbVie to generate earnings-per-share of $7.91 in 2018, which is equal to the midpoint of management guidance. Based on this forecast, the stock currently trades for a P/E ratio of 11.5. This is below our fair value estimate of 13.0, for a fair value share price of $103.

As a result, we view AbbVie stock as undervalued. We also expect annual earnings growth of 9.5%. The dividend yield of 4.7% will further add to shareholder returns. Overall, we expect total returns of 16.2% per year, over the next five years.

With strong growth potential, a high dividend yield, and a low stock valuation, AbbVie stock is highly attractive for value and income investors looking for high total returns.

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