Better Dividend Stock: AbbVie or Pfizer?

Key Points

AbbVie is a Dividend Aristocrat with a juicy dividend yield.

Pfizer also has an attractive dividend program and strong growth prospects over the next few years.

Both companies, however, face challenges with generic and biosimilar competition on the way for key drugs.

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If you're looking for juicy dividend yields, you might want to check out big pharmaceutical stocks. AbbVie (ABBV -0.04%) and Pfizer (PFE -3.22%) stand out as two of the best in the industry.

So far this year, Pfizer has been the bigger winner in terms of stock performance . However, over the past decade, AbbVie has delivered a much greater total return than Pfizer has.

Which of these two pharma giants is the better dividend stock to buy right now? Here's how AbbVie and Pfizer stack up against each other.

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The case for AbbVie

Few drugmakers can match AbbVie's track record when it comes to dividends. The company belongs to the elite group known as Dividend Aristocrats, S&P 500 members with at least 25 consecutive years of dividend increases. AbbVie's dividend yield of nearly 4.6% is one of the highest in the healthcare sector -- and way above the S&P 500's current average of about 1.3%.

Can AbbVie keep its streak of dividend hikes going? It's a near certainty. The company generates way more than enough free cash flow to fund its dividend program. Its management also understands how important dividend increases are to shareholders.

There's one key headwind for AbbVie, though. Biosimilars to its top-selling drug, Humira, hit the U.S. market in 2023. Humira, an immunosuppressant that has been the world's top-selling drug for years, generated roughly 36% of the company's total revenue in the second quarter.

However, AbbVie has long anticipated Humira's twilight. The company already has two worthy successors on the market, Rinvoq (for rheumatoid arthritis) and Skyrizi (for plaque psoriasis). It projects that these two drugs will combine for sales of $15 billion in 2025.

In addition, AbbVie's lineup includes several other solid growth drivers. Blood cancer drugs Imbruvica and Venclexta continue to enjoy momentum. The company's acquisition of Allergan also gave it several products with strong sales growth, including migraine drug Ubrelvy and antipsychotic Vraylar.

The case for Pfizer

Pfizer also offers an attractive dividend that currently yields nearly 3.4%. The company is arguably in a stronger position for future dividend increases than AbbVie. Pfizer generates significantly greater cash flow than AbbVie does. It also has a cash stockpile (including cash, cash equivalents, and short-term investments) that's 2.5 times larger than AbbVie's.

You can bet that cash position will improve. Pfizer projects that the COVID-19 vaccine it markets with BioNTech will rake in sales of more than $22 billion in the second half of this year.

The company expects to grow its adjusted earnings by at least a low double-digit percentage annually through the end of 2025. It's important to note that this estimate is risk-adjusted. Pfizer isn't assuming that all of its pipeline candidates will be successful. The big drugmaker also didn't include any COVID-19 sales in its projection.

There's no question that Pfizer will continue to make a lot of money from its COVID-19 vaccine. No one knows for sure yet, though, just how much recurring revenue the company can count on. Pfizer could also have another COVID-19 blockbuster on the market next year with its antiviral drug PF-07321332.

That said, like AbbVie, Pfizer has some challenges looming on the horizon. Patents for several of the company's drugs expire in 2026 and subsequent years. Look for Pfizer to probably use some of its growing cash stockpile to make acquisitions that help offset the potential losses from this coming patent cliff.