What's the best dividend stock in all of big pharma? I would argue that the hands-down winner is AbbVie (ABBV 0.89%). The big biotech has the total package for dividend-seeking investors: a high yield, manageable payout ratio, and a long record of dividend increases.
I listened to several members of AbbVie's executive team, including CEO Rick Gonzalez, talk about their company's future at the Morgan Stanley healthcare conference on Tuesday. It was an interesting discussion. One of the biggest takeaways I had as someone who regularly covers AbbVie is this: The dividend will keep on growing. Here are five reasons why.
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1. Humira remains the gold standard
Amgen (AMGN 1.11%) and Pfizer are encountering challenges in propping up sales for Enbrel and retaining the autoimmune disease drug's formulary position, but that hasn't seen to be a problem for AbbVie with Humira. When asked why that's the case, Gonzalez gave a simple reason: Humira is typically still "the gold standard" in its target indications.
Gonzalez noted that AbbVie continues to gain market share, and perhaps more impressively, grow the market for Humira. He said that Humira's status as a premiere drug that meets patients' needs allows the company to better negotiate for position on payers' drug formularies.
While Amgen won Food and Drug Administration approval for its biosimilar to Humira last year, the product still hasn't been launched yet. AbbVie and Amgen will face off in court in November 2019. Gonzalez said that he's confident that AbbVie will be able to hold off rivals in the U.S. through 2020 thanks to the broad patent portfolio held for Humira.
What does this have to do with AbbVie's dividend? A lot. Humira generated more than $16 billion in sales last year, roughly 63% of AbbVie's total revenue. If Humira continues to do well, so will AbbVie. And that means more money to return to shareholders in the form of dividends.
2. Great new products
Even though Humira remains the most important asset for AbbVie, the company has new products either on the market or that should soon be on the market that hold the potential to be huge winners. Imbruvica stands at the top of that list, with sales growing nearly 44% year over year in the first half of 2017.
AbbVie's head of research and development Mike Severino mentioned two other products that should be key for the company: Mavyret and elagolix. In August, the FDA granted approval to Mavyret in treating all six hepatitis C genotypes. AbbVie submitted a new drug application (NDA) for elagolix in treating endometriosis on Sept. 6.
Imbruvica is already a blockbuster. Mavyret and elagolix should also join the club in the not-too-distant future. That means more revenue and earnings growth for AbbVie -- and more money for dividend increases.
3. Impressive pipeline to drive earnings growth
Thanks in part to acquisitions over the last couple of years, AbbVie claims one of the strongest pipelines in the biopharmaceutical industry. Severino talked about several of the company's pipeline candidates for which data readouts are on the way.
In the immunology area, AbbVie has two especially promising experimental drugs. Severino said that more late-stage data is coming in early 2018 for upadacitinib (also referred to as ABT-494) in treating rheumatoid arthritis. Results from three late-stage studies of risankizumab are expected by the end of 2017 with a fourth study reading out in 2018.
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Severino also highlighted a couple of AbbVie's top oncology candidates. Venclexta is already approved as a monotherapy in treating chronic lymphocytic leukemia (CLL) patients with a specific genetic mutation. The Murano study of a combination of Venclexta and Roche's Rituxan could be key in enabling AbbVie to capture a larger share of the CLL market. AbbVie also expects to provide an update on results from an important study of Rova-T in treating small cell lung cancer by the end of 2017.
At some point, AbbVie will face stiff competition for Humira. Having such a robust pipeline should allow the company to keep the dividends flowing when that day comes.
4. Management committed to dividend hikes
There are some companies that have greater cash flow and cash stockpiles than AbbVie does that don't pay out nearly as rich of a dividend. Amgen, for example, fits that category. The difference is that AbbVie prioritizes its dividend more heavily than many of its peers.
It was great to hear AbbVie CFO Bill Chase state not only is a dividend very important to the company's identify but so is a growing dividend. Chase said that investors should expect to see "nice dividend growth" in the future. He clarified that the dividend increases might not be "one-for-one with earnings growth," but would still be very attractive.
5. Track record of delivering
All of the above factors depend on AbbVie's management team being able to execute on its strategy. Defending Humira's market position, launching new products, and increasing dividends requires action and not just talk. The good news is that AbbVie has a great track record of delivering on its promises.
In 2015, AbbVie's management team provided a relatively long-term outlook. Gonzalez pointed out that every pipeline event since that time that has played out has either achieved or exceeded expectations. AbbVie has, according to Gonzalez, ranked either No. 1 or No. 2 in the industry for total shareholder return, revenue growth, and earnings-per-share growth. The company's proven ability to do what it says it will do should give shareholders confidence that when AbbVie says its dividend will keep growing, that's exactly what will happen.
