A host of macroeconomic issues have rattled the stock market and the economy so far in 2022. Major U.S. indices are down for the year. Some, like the Nasdaq, are down more than 10% year to date amid volatile trading.
AbbVie (ABBV -0.45%) on the other hand, has been on a tear, gaining over 20% in the last six months, and over 6% year to date. Investors recognize that AbbVie can be a rock-solid dividend stalwart in their portfolios during uncertain times.
Why AbbVie in the current market?
Inflation reached 7.5% in January, the highest rate in 40 years. Americans are paying higher prices, and the current inflation rate is unsustainable. The Federal Reserve will soon act with interest-rate increases and other hawkish policies. As if this weren't headache enough, it now appears that Russia is likely to take military action in Ukraine and draw significant international sanctions. Because Russia exports so much energy, one likely result would be a stark rise in gasoline prices.
As prices continue to rise, consumers will become more price-conscious and often forgo luxury items while focusing on the necessities. Investors will also look for a safe haven in areas like consumer staples, utilities, defense stocks, and pharmaceutical companies like AbbVie.
Having patent-protected products allows AbbVie tremendous pricing power in the marketplace; having essential products and pricing power makes the company highly inflation-resistant. This is why AbbVie stock has made substantial gains in the current market while many other sectors have suffered.
Solidifying the future
AbbVie may be best-known for Humira, a medication that treats moderate to severe Crohn's disease and has been highly successful. The drug is a blockbuster that has made billions upon billions of dollars for AbbVie; Humira pulled in $5.33 billion in global sales in the last quarter alone. The problem for AbbVie is that biosimilars are now available in Europe and are coming to the U.S in 2023. Thanks to the biosimilars, European Humira sales have already retreated significantly, and sales in the U.S. will undoubtedly drop in 2023 and thereafter.
Management at AbbVie is charged with finding new product lines to maintain its success, and it has done just that. In May 2020, AbbVie announced it had completed the acquisition of Allergan. This massive deal brought the Botox and Vraylar franchises, among other products, to AbbVie. In 2021, sales of these two products alone reached $4.2 billion for the year. AbbVie has also developed Skyrizi and Rinvoq, which treat plaque psoriasis and rheumatoid arthritis, respectively. When it released full-year 2021 earnings, AbbVie reaffirmed its guidance that total sales for these two drugs will reach $15 billion combined by 2025.
AbbVie has consistently reduced its reliance upon Humira while increasing overall revenue. As the chart below shows, AbbVie's total quarterly revenue has grown from $8.6 billion in the first quarter of 2020 to nearly $14.9 billion in the fourth quarter of 2021:
Meanwhile, the company's reliance on Humira has shrunk from 55% to 36% over this time. This clearly illustrates that AbbVie can continue to prosper without leaning so much on Humira.
A solid and growing dividend
AbbVie's stock dividend is also a significant attraction, currently standing at $1.41 quarterly or $5.64 annually. Since AbbVie's inception in 2013, the dividend has increased each year. The dividend yield, currently 3.87%, is still attractive despite the stock's recent increase in price.
Dividends are a terrific way to navigate through rough waters in the market; even if the market dips, you can count on the income each quarter until the market recovers. You can also reinvest the dividends and take advantage of compounding gains.
In 2021, the company produced $22.8 billion in cash flow from operating activities and paid out $9.3 billion in dividends. What's more, AbbVie's dividend payout ratio is well under 50%, making its dividend quite safe, as shown below:
While the overall market remains uncertain, AbbVie is making all the right moves to give shareholders a safe place to invest their hard-earned money and earn a consistent and rising return. AbbVie's stock has seen significant gains recently, and the stock will likely continue to reward long-term investors into the future.