Biopharmaceutical giants AbbVie (NYSE:ABBV) and Eli Lilly (NYSE:LLY) have both provided shareholders with market-crushing returns over the past five years. The secret to their success has been their laserlike focus on creating value for shareholders through various business development activities, an aggressive approach to clinical trials, and regular hikes to their respective dividend programs.
AbbVie and Lilly, in fact, have been two of the most generous pharma companies over this period in terms of raising their dividends. Keeping with this theme, AbbVie has boosted its dividend by a staggering 141% since the start of 2015, whereas Lilly has hiked its annual payout by 48% over the same period.
Which of these two top dividend growth stocks is the better buy right now? Lets take a look at the strengths and weaknesses of each company to find out.
The case for AbbVie
AbbVie is currently putting the finishing touches on its highly anticipated megamerger with Botox maker Allergan (NYSE:AGN). This transaction is supposed to close before the end of the first quarter of 2020. And with Allergan in the mix, AbbVie should easily generate high single-digit top-line growth in the years ahead. The drugmaker's combined portfolio will sport a healthy mix of established legacy products like Botox and Humira, along with a bevy of newer growth medicines such as Imbruvica, Linzess, Orilissa, Ozurdex, Rinvoq, Skyrizi, Venclexta, and Vraylar. That's an impressive lineup of top-notch growth products.
That said, it won't be all rainbows and unicorns once this megamerger is consummated. Right out of the gate, the new-look AbbVie will be straddled with a shocking amount of debt. AbbVie's management has tried to assuage shareholders by stating that Humira's sizable revenue stream should provide a viable pathway to quickly de-lever post-transaction.
At a minimum, though, AbbVie won't have much in the way of financial flexibility to pursue additional bolt-on transactions for perhaps the next two to three years. That's not a showstopper, but the big biotech won't have much room for error, either. It must fold in Allergan quickly to begin generating value-creating synergies as soon as possible. Too much debt, after all, is never a good thing.
The case for Lilly
Lilly is apparently feeling rather acquisitive these days. Despite its recent acquisitions of both Loxo Oncology and Dermira, the drugmaker said that it plans to make several additional midsized transactions throughout the course of 2020. Presumably, these future bolt-on deals are part of a broader strategy designed to head off any forthcoming headwinds over the prescription drug pricing debate inside the United States.
After all, the enormous cost of diabetes drugs -- one of Lilly's core areas of expertise -- has been a key area of concern for lawmakers. A Bernie Sanders presidency, while far from a sure thing, would accentuate the need for companies like Lilly to drive top-line growth through rising sales volumes, instead of regular price hikes for already-pricey medicines. So Lilly's decision to take a hyper-aggressive approach to business development well ahead of the upcoming U.S. presidential election is arguably a wise move.
The bad news is that Lilly's shares are on the pricey side right now. With a forward price-to-earnings ratio of 18.4, the drugmaker's stock is the second most expensive within its big pharma peer group. Investors have steadily piled into this name in response to the rapidly rising sales of the company's battery of growth products, such as Trulicity, Taltz, Jardiance, Verzenio, Olumiant, Emgality, Basaglar, and Cyramza. Future share price appreciation, in turn, is likely to be dependent on Lilly's planned mergers and acquisitions bonanza.
Which stock is the better buy?
AbbVie and Lilly are both proven winners. So it's arguably worthwhile to own both of these top dividend growth stocks for the long term. But if you can only buy one of these big biopharmas, AbbVie comes across as the more attractive play right now. AbbVie's Allergan deal should significantly acccelerate its top-line growth going forward and allow it to table its biggest headwind -- the eventual decline of Humira. Lilly, on the other hand, doesn't seem to have much more room to run in the near term, thanks to its market-crushing performance over the past 36 straight months.