As one of the world's largest pharmaceutical companies, it's no surprise to hear that AbbVie (ABBV -4.58%) has plenty of moving parts for investors to think about when they're wondering what to do to make the most money from their shares. If you don't understand the factors that make the stock go up and how to make the best of them, there's a good chance that you'll be leaving money on the table.
And that's why you need to know three simple tricks to flourish as an AbbVie shareholder.
1. Plan your purchases around catalysts
AbbVie develops new medicines as its core business, and to make money from doing so, it needs to perform clinical trials to show regulators at the Food and Drug Administration (FDA) that its drugs are both safe and effective. And if you know to add to your position well in advance (or well after) important milestones, your returns could be significantly higher.
In short, the market reacts to new information, and people buy or sell the stock according to whether the new information implies positive or negative things about the company's future.
For example, if you buy shares right when everyone is hyped about some recently published clinical trial results, you'll be jumping on the bandwagon right when a ticket is the most expensive. On the other hand, if you build your position during the doldrums when there's nothing new on the horizon for months and months, your chances of paying the hype tax are much lower.
In contrast, buying shares right after AbbVie reports bad clinical trial results and its stock is dented might be a good idea, as it's likely that another set of results will eventually come along and erase the damage.
In terms of specific catalysts to invest on, it's best to take a look at the company's investor materials to see when management plans to report its clinical trial results and when it's expecting to hear back from regulators.
Next year, it could get the green light to launch as many as eight of its programs, some of which are new and some of which aim to expand the indications (and thus the addressable market) of its therapies that are already commercialized. It'll also report data from 10 of its late-stage clinical trials.
That's a total of 18 opportunities for enterprising investors to pick up a few more shares for either a quick return or to take advantage of a short-term setback. So don't let these chances pass you by if you're interested in adding to your shares.
2. Reinvest the dividend instead of spending it
Setting up a dividend reinvestment plan (DRIP) is one of the fastest and easiest tricks you can use to maximize your returns. Right now, AbbVie has a forward dividend yield of nearly 3.9%. Therefore, without a DRIP, you'll get around 3.9% of its current share price if you wait a year for the dividends to accumulate. If you then take that money and spend it, you'll start the following year with the same number of AbbVie shares as before.
But after setting up a DRIP, you'll be increasing your number of shares each year, which means that your initial investment will compound in value far faster than it would be doing otherwise. This makes perfect sense, as the total shareholder return from the stock includes both the gains from share price appreciation as well as the dividend payouts, so if you withdraw the payouts, your returns will be lower.
And if you opt to spend your passive income, you'll be missing out on the benefit of the dividend growth from the additional shares you'd have had, which bears a little more discussion in the next section.
3. Hold your shares for the long term
The final trick to getting the most out of your AbbVie shares is to refrain from selling them. By holding your shares for years and years, you'll get the full benefit of two major advantages.
The first advantage is dividend growth, which AbbVie has a history of. Over the last 10 years, its payout grew by 252.5%. That means people who bought shares 10 years ago and held them have significantly higher returns on their shares than what the stock's current forward dividend yield would imply for its dividend returns one year from now. It also means that once you're ready to get some cash flow from your investment, it'll be more lucrative to do so the longer you're willing to wait.
The second major advantage is the company's share repurchasing activity. Over the last 12 months, AbbVie spent more than $1.6 billion of its free cash flow (FCF) of around $22.2 billion to buy back its shares, thereby reducing the number of shares outstanding and pumping up their value for shareholders.
And that sum is very much on the lower end of the company's repurchasing volume; in 2019, it bought back nearly $12 billion of its shares for the year. People who sold their shares right before that didn't get the benefit of the capital that management allocated to shareholder returns. So keep holding your AbbVie shares if you want the most growth from your investment.
