Inflation is a problem in the U.S. The Consumer Price Index, a measure of the change in prices for some common goods and services, rose by 6.2% in the 12-month period ending Oct. 31. That's well above the U.S. Federal Reserve's long-term inflation target of 2%. Inflation chips away at our purchasing power, and that's why focusing solely on holding cash is not the best strategy. Investing in solid dividend-paying stocks can help counter the effects of inflation.
While partaking in the stock market has historically been one of the best ways to grow the average person's capital, dividend stocks take this to a whole new level. Here's one way of seeing this: In the past 10 years, the S&P 500 rose by 270.5%. The index's total return, which assumes that dividends are reinvested, was 352.9% over the same period. There are plenty of excellent dividend stocks on the market; one great option to consider is pharma giant AbbVie (ABBV 0.25%). Let's see why this drugmaker could be an excellent addition to your portfolio.
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Looking at AbbVie's dividend record
AbbVie made its debut on the stock market in January 2013 when it split from its former parent company, Abbott Laboratories. Considering the time it spent under the wing of Abbott, AbbVie is a Dividend Aristocrat, having seen its payouts rise annually for 49 years in a row. Since 2013, the company's dividends have increased by 252.5%. That's an excellent record. The company currently offers a yield of 4.5%, much higher than the S&P 500's yield of 1.3%.
Furthermore, the company's current cash payout ratio of 41.7% is pretty conservative. AbbVie seems to have the means to sustain more dividend increases. The drugmaker will likely join the exclusive group of Dividend Kings next year, companies in the S&P 500 that have raised their payouts each year for 50 consecutive years. That makes it a solid option for income-oriented investors, provided, of course, it can continue posting solid financial results.
A strong business
AbbVie's shares significantly outperformed the broader market between 2013 and 2018, but things have been very different since. One of the reasons behind the drugmaker's lackluster showing in the past few years has been the loss of patent exclusivity of Humira in Europe in 2018. Sales of this rheumatoid arthritis medicine have been declining in international markets for the better part of the last three years. Also, given that the company expects biosimilar competition for Humira to enter the U.S. market in 2023, things don't look great on this front.
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Fortunately, AbbVie has the means to continue performing well for many years to come despite this problem. Several of the company's other drugs are performing exceptionally well. For instance, sales of the cancer medicine Venclexta came in at $492 million during the third quarter (ending Sept. 30), 40.1% higher than the year-ago period.
Revenue from Skyrizi, an immunosuppressant, was $796 million, an 83.3% year-over-year increase; sales of Rinvoq, another immunosuppressant, more than doubled year over year to $453 million. It is worth noting that Rinvoq could encounter some headwinds. It is part of a class of drugs known as JAK inhibitors, which have recently attracted the attention of health industry regulators.
In September, the Food and Drug Administration started requiring JAK inhibitors to come with a warning of an increased risk of cancer and cardiovascular events. The agency made that decision after a post-marketing study found that Xeljanz, a JAK inhibitor marketed by Pfizer, carried these risks. Despite this major caveat, AbbVie management expects Rinvoq to be a key growth driver for the company.
Then there was the company's decision to acquire Allergan back in May of 2020, in a cash and stock transaction valued at $63 billion. Thanks to this deal, the company got its hands on several exciting products, most notably Allergan's Botox franchise. In the third quarter, sales of Botox Cosmetics grew by 38.5% year over year to $545 million, while sales of Botox Therapeutics jumped by 23.4% year over year to $645 million. AbbVie's total revenue for the quarter was $14.3 billion, an 11.2% year-over-year increase.
One of the reasons AbbVie decided to acquire Allergan and its Botox franchise is that the company believes it would be extremely difficult to create a biosimilar version of Botox. This product will continue to contribute meaningfully to the company's performance. And given AbbVie's rich pipeline -- with 21 phase 3 studies and many more early-stage clinical trials -- the company is well-positioned to add more products to replace Humira.
AbbVie is here to stay
An excellent dividend track record, coupled with a deep lineup and solid pipeline, makes the company an outstanding dividend-paying stock to help you smooth out the harmful effects of inflation. And there's one more reason to pull the trigger right now. With a forward price-to-earnings (P/E) ratio of just 9.2 (compared to the pharma industry's overall forward P/E of 13.9 as of Nov. 10), AbbVie is attractively valued. At current levels, this pharma giant looks like a screaming buy.
