Better Dividend: Abbott vs. AbbVie

High yields aren't everything when you're searching for the perfect dividend stock. Great stocks for the long-term require stability, financial success, and a business that can thrive for years to come -- all on top of a great and manageable dividend to deliver year after year. Healthcare's a source of several solid dividend stocks, but just which of this sector's top stocks are the best for your dividend portfolio?

Big pharma's AbbVie (NYSE: ABBV  ) and diversified health care company Abbott Labs (NYSE: ABT  ) are tied together after the latter spun off the former to start the 2013. These two firms share another thing in common, however: They each sport a strong dividend. Just which one is the better yield in the long term? Let's compare the two stocks and see which offers more for your money.

AbbVie's Humira leads the way
AbbVie's a young company, but the stock's 3.6% dividend yield can appeal to any investor as one of big pharma's highest yields. The company doesn't have much of a dividend history, for obvious reasons -- AbbVie's not even a year removed from its spinoff -- but it has an immense amount of room to work with in increasing its dividend, considering that AbbVie only has a 10% dividend payout ratio.

This company is best known in health care investing circles for blockbuster immunology drug Humira. A product that pulls in more than $9 billion in annual sales and more than 50% of a company's total revenue will do that. While Humira's raw financial power is AbbVie's cornerstone, it's also a threat. AbbVie is dependent on a single drug for more than half of its business. That kind of concentration isn't a typical hallmark of a top dividend stock.

AbbVie's current portfolio doesn't offer much to get excited about. The company's next best-selling drug in the U.S., AndroGel, sold only around 11% of what Humira did in the first quarter. No other AbbVie drug on the market today is posting growth anywhere near Humira's 16% year-over-year mark for the quarter, either.

However, AbbVie's future offers reasons to get excited. Humira will lose patent protection in a few years, but don't expect the biologic to have generic competition that fast. Many biologic drugs have been harder for generic drug makers to replicate, and Humira should be able to sell well past its expiration date. Furthermore, Humira rival drug Xeljanz, produced by Pfizer (NYSE: PFE  ) , has received a blow abroad after Europe's CHMP upheld a previous decision to recommend against the drug's use in certain types of rheumatoid arthritis. Xeljanz may be approved in Europe one day soon, but a delay is good for Humira's continued success across the Atlantic.

Additionally, AbbVie's underrated pipeline has a major weapon for the future. AbbVie is one of the leaders in the race to develop an oral hepatitis-C medication, a market that could hit or eclipse the $20 billion worldwide mark in coming years. AbbVie's unnamed treatment is dueling with Gilead's (NASDAQ: GILD  ) sofosbuvir to be the first drug to the market. Sofosbuvir has thrived in earlier-stage clinical trials, but AbbVie is poised to become a leader alongside Gilead in this market's early years -- a position it should be able to leverage into significant sales that will take some of its focus off of Humira.

Abbott's strong dividend history -- with a new and improved future
AbbVie has a lot going for it, but former parent company Abbott Labs is no slouch, either. The stock's dividend yield is a lot smaller than AbbVie's at only 1.6%, but Abbott's one of the S&P 500's dividend aristocrats, companies that have raised their dividend for at least 25 consecutive years. That's a strong history of stability that dividend investors can believe in, and with a payout ratio of 52%, Abbott has plenty of flexibility to continue that streak.

Abbott's not the growth engine that AbbVie is. The company's post-pharmaceuticals future has a star of its own in nutritionals sales, however. Abbott's nutritionals segment is its largest division, and the segment has exploded as an emerging markets superstar. Infant nutrition demand has taken off in developing nations, particularly in the populous China and India. The company's nutritionals division sales jumped by more than 17% in the second quarter alone to more than $1.7 billion in sales. Considering that company CEO Miles White predicted that emerging markets will one day power more than half of Abbott's total sales, this stock's attractive just based on geographical trends alone.

However, Abbott does have downsides. The company's generic drugs business is its second-largest division by sales, and it has recently had a hard time pulling in growth. Generic drugs are slow, if steady, sellers, and you shouldn't expect Abbott to experience a huge bounce here.

The company's medical device department also has struggled recently, although Abbott remains a leader in the drug-eluting stent market with its star Xience stent. There's room for optimism here: Abbott's Absorb next-generation stent is an innovative game-changer for the industry that should keep the company at the top of this market. It may not be enough to propel Abbott's device division into double-digit growth like its nutritionals segment, but the Absorb and Xience offer plenty of sales upside into the future.

Which stock takes the crown?
Both AbbVie and Abbott are great stocks. There are plenty of reasons to invest in each company: AbbVie's sales strength behind Humira and success in the all-oral hepatitis-C chase makes this young company's future look bright indeed, while Abbott's legacy of dividend increases and booming nutritionals segment bode well for the company, even without its high-power pharmaceuticals division.

It's hard to pick a winner between these two top-notch health care stalwarts, but for dividend investors looking for stability, solid growth, and a reliable dividend you can count on, it's impossible to count out Abbott. AbbVie's overreliance on Humira takes down this stock by a hair, and while Abbott has sluggish divisions in medical devices and generic drugs, the firm's well-set to succeed for years to come. Abbott has been a crown jewel for dividend investors for years, and it looks to remain that way for years to come.

One of the best parts of owning top health care stocks like AbbVie and Abbott is their attractive dividends, but smart investors know the importance of diversifying -- seeking high-yielding stocks from multiple industries. The Motley Fool's special free report "Secure Your Future With 9 Rock-Solid Dividend Stocks" outlines the Fool's favorite dependable dividend-paying stocks across all sectors. Grab your free copy by clicking here.


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  • Report this Comment On July 31, 2013, at 11:35 PM, busterbuddy wrote:

    not sure how you can say Abbott is a dividend aristocrat given it has spun off the income producing side.

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