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Unstoppable Dividend King for 2022: AbbVie or Johnson & Johnson?

By Jim Halley – Updated Dec 17, 2021 at 9:25AM

Key Points

  • These large-cap stocks have raised their dividends for 50 years or more.
  • Both companies have seen double-digit improvements in revenue over last year.
  • Compared to competitors, they seem to be undervalued.

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Both of these two healthcare stocks have potential. Which one has a better year ahead?

AbbVie (ABBV 0.45%) and Johnson & Johnson (JNJ -0.96%) have plenty of similarities. They're both large-cap stocks in the healthcare space that are also Dividend Kings. Both appear to be undervalued based on their current and expected future earnings. They're the type of steady, long-term investments that retirees and other investors could love. Yet one of these two, in my view, is a better bet as an unstoppable stock in 2022. Let's take a closer look.

Scientists wearing scrubs examining test tubes in a laboratory.

Image source: Getty Images.

The case for Johnson & Johnson

Johnson & Johnson had revenue of $82.5 billion last year, more than the gross domestic product of many countries. And the company keeps growing. Over the past five years, J&J has increased revenue each year -- or some 27% in total during that period.

J&J's greatest strengths are its size and diversity of revenue streams. The company operates three segments led by pharmaceuticals which had $13 billion in sales during the latest quarter, followed by medical devices which brought in $6.6 billion, and consumer health which achieved $3.7 billion. Combined, the company reported $23.3 billion in revenue, up 10.7% over the year-ago period.

Of note, the company actually plans to split off into two separate entities over the next two years. Pharmaceuticals and medical devices will form one company and consumer health will form the other. With most of the company's growth in its pharmaceutical segment, investors may want to stick with that part of the company when the split occurs.

In the latest quarter, pharmaceutical sales rose 13.8% over the year-ago period, led by strength in the company's growing stable of oncology drugs. Expect strong growth too in medical devices, helped by the Carto Vizigo and Carto 3 V7. These systems, which aid in stabilizing heart rhythms, could be in greater demand now that more non-COVID procedures are being performed again. 

J&J has faced some notable challenges regarding opioid and baby-powder products in recent years. Just this week, the Supreme Court rejected the company's request to halt a talcum powder lawsuit by the state of Mississippi.

But many investors have remained loyal to the company, at least in part because it has raised its dividend for 59 consecutive years, including a 5% raise in 2021 to $1.06 per share. At present, this provides a yield of about 2.5%, and the dividend is well-covered with a payout ratio of 47.7%, leaving plenty of room for continued raises.

Moreover, the company remains well in the black with a net profit margin of 15.7% in the latest quarter, slightly above the pharmaceutical industry average of 14.1%. Earnings per share were $1.37, up 3% over the same period in 2020.

The case for AbbVie

Since splitting off from Abbott Laboratories in 2013, AbbVie has seen revenue increase steadily -- up 115% over the past five years -- and it has been up every year. This year is looking good too. Through the first nine months, the company reported revenue of $41.3 billion, putting it on track to easily surpass the $45.8 billion it posted last year.

AbbVie is best-known for the world's biggest-selling drug, Humira, an immunology medication with several uses. However, it goes off patent in 2023, and that has investors concerned. In the third quarter, Humira's worldwide sales were $4.5 billion, up 5% over the year-ago period, but its international sales were $812 million, down 14.6% year over year, due to biosimilar competition. The drug already went off patent in Europe in 2018.

However, AbbVie has other products poised to pick up the slack as Humira's revenue declines. The company's two new immunology drugs, Rinvoq and Skyrizi, posted revenue of $796 million and $453 million, respectively, in the third quarter. While those numbers pale in comparison to Humira's current sales, it's a start. Remember that in 2003, Humira's first full year on the market, it produced only $280 million in sales. And AbbVie expects to expand labeling for the two newer drugs, so those numbers will likely grow.

What's more, Humira's sales won't necessarily crater after it loses patent exclusivity in the U.S. A good comparison is Botox, which already has plenty of competition, yet it continues to produce strong numbers for AbbVie. Botox Therapeutic brought in $645 million in the quarter, up 23.4% year over year, and Botox Cosmetic brought in $545 million, up 38.5% over the same period in 2020.

Meanwhile, income-oriented investors should be pleased to know that AbbVie will raise its dividend 8.5% in 2022 to $1.41 a share, beginning with the first quarter. That gives it a current yield of 4.14%, comfortably higher than Johnson & Johnson's dividend. Counting its time as part of Abbott, AbbVie has raised its dividend for 50 consecutive years. And since becoming a separate company in 2013, AbbVie has raised its dividend 250% while still managing to keep its payout ratio at a conservative 41%.

The company also maintains strong profit margins, coming in at 22.2% in the latest quarter. And its trailing price-to-earnings ratio of 29.9, while higher than J&J's 24.7, is still well below the pharmaceutical average of 34.5.

ABBV Chart

ABBV data by YCharts.

The choice is clear

There are plenty of reasons to like both healthcare stocks: healthy margins, deep revenue streams, and of course, dependable dividend raises. AbbVie has a huge stable of drugs; Johnson & Johnson has its own large pharmaceutical portfolio plus two other segments with consumer care and medical instruments -- at least, for now.

However, AbbVie seems to have more momentum. It has seen greater growth in its share price, revenue, and dividends over the past five years than has Johnson & Johnson -- and I expect that to continue. Given a choice between the two, I prefer AbbVie.

Jim Halley owns AbbVie and Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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