Dividend Investor Portfolio #21: Prescribing to This Pharma Powerhouse
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Dear Investor,
Welcome to the 21st edition of TipRanks’ Dividend Investor Portfolio & Newsletter.
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Market-Moving News: August 12, 2024
The first trading week of August started with volatility, as the S&P 500 (SPX) ended flat for the week. Its 3% drop at the start of the week represented its biggest one-day drop in nearly two years. The Nasdaq Composite (NDAQ) trimmed its weekly decline to 0.2% while the tech-heavy Nasdaq (NDX) clawed back from an initial decline to end the week on a positive note. The Dow Jones Industrial Average (DJIA), which dropped over 1,000 points earlier in the week, ended the week with a drop of 0.6%.
After a disappointing jobs report, some economists and investors began calling for an emergency rate cut by the Federal Reserve. The Central Bank is expected to lower rates in September.
Meanwhile, Japan’s benchmark stock index, Nikkei, plummeted after a rate hike by the Central Bank of Japan, as investors rushed to unwind trades. Despite this volatility, the S&P 500 and Nasdaq remain up over 11% year-to-date, with trends shifting from expensive tech stocks to more cyclical sectors like energy, financials, and utilities. The August jitters have created potential buying opportunities, particularly for stocks such as Microsoft and Nvidia.
Many market strategists believe that there will continue to be significant uncertainty and anxiety hanging over the market until the next Fed meeting in September. As of Friday, markets are pricing in a 52% chance the Federal Reserve will cut interest rates by 50 basis points by the end of September, down from 75% a week earlier, according to the CME FedWatch Tool.
After months of rising unemployment and signs of a weakening labor market, markets have shifted from a fear of strong economic growth to welcoming it as a sign the U.S. might avoid a recession. This week’s focus will be on inflation and retail sales, with the release of CPI data and July retail sales expected later in the week. Furthermore, retail giants like Home Depot (HD) and Walmart (WMT) are expected to report their earnings this week.
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This Week’s Quality Dividend Stock Idea
AbbVie (ABBV) is a biopharmaceutical company established in 2013 following its spin-off from Abbott Laboratories. This company is headquartered in Chicago, Illinois. AbbVie has a comprehensive product portfolio including immunology, oncology, aesthetics, neuroscience, and eye care.
Today, with a market capitalization of $336.2 billion, and annual revenues of $54.3 billion, ABBV ranks #77 on the Fortune 500 list.
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AbbVie’s Strong Drug Pipeline
AbbVie’s flagship immunology drug, Humira, is a biologic therapy administered via subcutaneous injection for the treatment of a wide range of autoimmune diseases. Humira has been AbbVie’s top-selling product and generated annual revenues of $14 billion in FY23. However, the company’s patent for Humira expired in the U.S. and Europe, giving way to a host of biosimilars in the market.
Despite this, AbbVie has retained over 80% of the U.S. market share with Humira, even with 10 biosimilars now available. The company achieved this by reducing Humira’s net price, although it still anticipates a 36% decline in U.S. sales for the drug this year.
AbbVie, however, is not solely dependent on Humira for its financial success. The company boasts a robust pipeline of promising drug candidates and continues to invest heavily in research and development. This year, excluding Humira, AbbVie’s portfolio is expected to surpass its initial full-year sales guidance by over $1 billion, driven by strong performance in immunology and oncology. Currently, 80% of AbbVie’s sales come from drugs other than Humira.
Among these, Rinvoq, an immunology drug approved for treating inflammatory diseases like rheumatoid arthritis and Crohn’s disease in North America, Europe, and Japan, is expected to generate $5.7 billion in sales this year. Similarly, Skyrizi, another biologic therapy from the immunology portfolio, is projected to achieve global sales of around $11 billion this year, an increase of $300 million due to strong performance across all approved indications.
Together, Rinvoq and Skyrizi contributed over $4.1 billion in sales in the second quarter, reflecting 50% operational growth in their fifth year on the market.
Looking ahead, the global immunology and oncology markets are projected to be worth $257.4 billion and $518.25 billion, respectively, by 2032. AbbVie is well-positioned to benefit from this growth as it continues to strengthen its immunology and oncology pipelines.
In oncology, AbbVie’s portfolio remains strong, with Venclexta, a treatment for blood cancers, expected to reach approximately $2.5 billion in sales this year. This is an increase of $100 million, reflecting strong momentum in both U.S. and international markets. AbbVie’s neuroscience and aesthetic portfolios are also enjoying rising momentum across various markets.
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Strengthening Its Pipeline Through Acquisitions
AbbVie has been on an acquisition spree to expand its drug portfolio. In 2020, the company acquired Allergan for $63 billion, significantly broadening its product offerings. This acquisition gave AbbVie access to the lucrative Botox market, valued at over $1 billion, along with other beauty-related drugs.
More recently, AbbVie completed an $8.7 billion acquisition of Cerevel Therapeutics, a clinical-stage biotech company focused on developing therapies for neuroscience diseases. Cerevel’s pipeline targets conditions such as schizophrenia, Parkinson’s, and mood disorders, adding valuable assets to AbbVie’s portfolio.
Earlier this year, the company also finalized a $10.1 billion acquisition of ImmunoGen. This deal strengthens AbbVie’s oncology pipeline with novel targeted therapies and next-generation immuno-oncology assets, potentially broadening treatment options for various solid tumors.
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ABBV’s Robust Financials
AbbVie reported strong second-quarter results, surpassing analysts’ expectations despite a 30% decline in global sales of its blockbuster drug Humira. Analysts project AbbVie’s earnings and revenue to grow by 25.5% and 5.7% annually, outpacing the broader U.S. market’s earnings growth rate of 14.8% per year.
Even with the decline in Humira sales, AbbVie remains confident that its newer immunology drugs, Skyrizi and Rinvoq, will drive future growth. In the second quarter, Skyrizi and Rinvoq posted global sales of $2.73 billion and $1.43 billion, respectively, exceeding expectations. Moreover, the company saw revenue growth across all its business lines, including Immunology, Oncology, Neuroscience, and Aesthetics.
AbbVie’s immunology portfolio contributed over 45% of its total revenues in Q2, generating $6.9 billion. The company has provided an optimistic outlook for FY24, projecting total net revenues of around $55.5 billion and adjusted earnings per share in the range of $10.71 to $10.91, up from the previous guidance of $10.61 to $10.81.
Moody’s has rated AbbVie’s debt as “A3,” indicating a low risk of default. Although AbbVie’s debt-to-equity ratio of 10.4 is higher than the industry average, its debt is well-covered by operating cash flows, with a debt-to-operating cash flow ratio of 26.3%. Additionally, the company’s interest payments are well-supported, with an EBIT that is 5.48 times its interest obligations.
AbbVie’s return on equity stands at 53.3%, placing it in the top 10% of the pharmaceutical industry, while its return on assets (ROA) and return on invested capital (ROIC) rank in the top 40%. Over the past year, AbbVie’s shares have surged by 25.4%, outperforming the S&P 500. Despite this, analysts believe the shares are still trading 20% below their fair value. Overall, Wall Street remains bullish on AbbVie’s stock.
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Dividend Growth Expected to Continue
AbbVie currently offers a dividend yield of 3.2%, higher than 70% of companies in the pharma industry. This yield is expected to rise to 3.5% over the next three years. In fact, the company announced a quarterly dividend of $1.55 per share and has consistently increased its dividend for the past 12 years. Currently, ABBV’s dividend payout ratio stands at 57.3%.
In addition to dividends, AbbVie rewards its investors with opportunistic stock buybacks. The company’s repurchase authorization allows management to buy shares at their discretion, with no time limit and the flexibility to discontinue the program at any time. Last year, the board approved a $5 billion increase to the existing buyback program. In the first half of this year, AbbVie repurchased 5 million shares for $959 million.
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Investing Takeaway
AbbVie has a strong drug pipeline with growth across all its business lines. The company has robust fundamentals with more than a decade-long record of consecutive dividend increases and is expected to continue rewarding its shareholders for years to come. These factors make AbbVie an attractive addition to long-term income portfolios.
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Dividend Investor Portfolio
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Portfolio News
¤ Amgen (AMGN) reported strong top-line growth even as its Q2 earnings fell short of analysts’ expectations. The company’s earnings were hit by higher operating expenses, including amortization costs from its acquisition of Horizon Therapeutics and other integration-related expenditures. The company now expects revenue between $32.8 billion and $33.8 billion this year, raising the lower end of the range by $300 million while it narrowed its EPS guidance.
¤ Automatic Data Processing (ADP)announced a quarterly dividend of $1.40 per share payable on October 1 to shareholders of record on September 13, 2024. The company posted robust fiscal fourth-quarter results late last month, beating analysts’ expectations.
¤ Allianz SE (ALIZY) reported solid results in the second quarter with a 7.6% increase in total business volume, reaching €42.6 ($46.51) billion. Following the stellar results, the German insurer increased its share buyback program for 2024 to €1.5 ($1.64) billion, including an additional €500 ($545.85) million repurchase starting in mid-August.
¤ Philip Morris (PM) made it to the “U.S. Conviction List – Directors Cut” list of Goldman Sachs. The analysts at Goldman Sachs believe that investors have underappreciated the growth opportunity seen in the stock, with smoke-free initiatives ramping up.
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Recent Trades
None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Dividend Growth Rate | Annual Dividend Income |
| 3.78% | 9.25% | $3,762.20 |
| Yield-on-Cost Adjusted |
Weighted Growth | Equal-Weight 100K Portfolio |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Dividend Yield | Annual DPS |
| Automatic Data Processing (ADP) | Sep 10, 2024 | Oct 03, 2024 | 2.16% | $5.60 |
| Allianz SE ADR (ALIZY) | May 08, 2025 | May 13, 2025 | 5.25% | $1.50 |
| Amgen (AMGN) | Aug 16, 2024 | Sep 06, 2024 | 2.62% | $9.00 |
| BlackRock (BLK) | Sep 09, 2024 | Sep 23, 2024 | 2.41% | $20.40 |
| Edison International (EIX) | Sep 27, 2024 | Oct 31, 2024 | 3.97% | $3.12 |
| JPMorgan Chase (JPM) | Oct 05, 2024 | Oct 31, 2024 | 2.04% | $4.60 |
| Kroger (KR) | Aug 15, 2024 | Sep 01, 2024 | 2.12% | $1.28 |
| LyondellBasell (LYB) | Aug 30, 2024 | Sep 05, 2024 | 5.27% | $5.36 |
| Philip Morris (PM) | Sep 12, 2024 | Oct 10, 2024 | 4.59% | $5.20 |
| Qualcomm (QCOM) | Aug 29, 2024 | Sep 20, 2024 | 1.85% | $3.40 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
