Lazard (LAZ), AbbVie (ABBV 0.78%), and NiSource (NI 0.98%) don't have much in common other than they are all U.S. companies that are a little bit underappreciated.
Investment firm Lazard and utility company NiSource are perhaps not as widely known to some investors, so it's not surprising that they might trade below 19 times forward earnings. AbbVie is a large-cap pharmaceutical company that is coming off a phenomenal year, and yet it is trading for less than 12 times forward earnings.
Looking ahead at 2023, there's a lot to like with all three dividend stocks.
1. Lazard is poised to bounce back
Lazard is a financial advisory and asset management firm that specializes in handling mergers and acquisitions (M&A) and restructuring for companies. The company, founded 174 years ago in New Orleans, now operates in 41 cities across 26 countries. Its shares plummeted more than 20% over the past year when M&A activity lessened as the Federal Reserve raised interest rates. While Lazard's diversity has often insulated it from downturns, its assets under management also fell.
Lazard is worth watching as we enter a new year. The stock trades at less than 9 times forward earnings, and if M&A activity picks back up again, which is likely once the Fed quits raising interest rates, Lazard's business will likely boom again.
As it is, even with a down year, the company is pretty sound because it kept costs down. In the third quarter, it reported record revenue of $724.3 million, up 3% year over year. Net income for the quarter was listed as $106 million, down 4%, but its earnings per share (EPS) were $1.06, up 7% over the $0.98 it had in the same period a year ago.
Lazard raised its quarterly dividend by 6% to $0.50 per share last year, which equals a yield of 5.7%, more than three times the S&P 500 average dividend yield. The company took advantage of its lowered stock price to do $237 million in share repurchases in the last quarter, which also helped the stock.
2. AbbVie keeps delivering
AbbVie shares have climbed more than 19% over the past year. The pharmaceutical company, based in North Chicago, has accomplished this by allaying investors' fears that it couldn't replace the revenue it will miss when Humira, its medication for treating autoimmune diseases, loses patent protection in the United States. It is No. 1 all-time selling drug.
Humira's sales won't crater immediately because it will take time for biosimilars to erode its sales. Even though the Food and Drug Administration (FDA) has already approved eight biosimilars for the therapy, only one -- Amjevita, made by Amgen (NASDAQ: AMGN) -- is launching in January, with the rest to follow as early as July. On top of that, Humira is approved for 10 applications, and some of Humira's patents won't expire until 2034. Even overseas, where Humira has faced biosimilar competition since 2018, its sales are down only 38.5% since biosimilar competition was launched in Europe four years ago.
AbbVie has been preparing for the patent cliff for a while and is banking on growing revenue from Skyrizi and Rinvoq. The two other immunology drugs have shown increased sales every year since they were launched in 2019.
Sources: Author research, AbbVie annual and quarterly reports.
In the third quarter, Skyrizi and Rinvoq brought in $2.092 billion, already 42% of Humira's sales of $4.956 billion in the quarter, and as you can see, Rinvoq and Skyrizi are still growing as they add indications. The company reported EPS in the quarter of $2.21, up 24.2% year over year.
AbbVie also has an attractive quarterly dividend, which it has raised for 51 consecutive years, counting a 5% boost it has scheduled for this year to $1.48, equaling a yield of 3.7%, more than double the S&P 500 average.
3. NiSource's safety makes it a solid choice
NiSource, based in Merrillville, Indiana, delivers natural gas to roughly 3.5 million customers and electricity to more than 500,000 customers across six states. The utility's stable earnings helped it weather this past year, with its shares down only 0.82% over that period.
Through nine months this year, the company reported a net income of $518.2 million, up 37.2%, year over year, with EPS of $1.18, compared to $0.91 in the same period a year ago.
The biggest concern for NiSource is it has a relatively high debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 5.1, but since the company is a fully regulated utility, it can gain back on its investments in infrastructure through higher rates.
The company has increased its quarterly dividend for 11 consecutive years, including a 6% lift last year to $0.235 per share, which equals a yield of roughly 3.4%. The payout ratio of the dividend is only 46%, and the company's consistent cash flows mean that level leaves room for additional dividend increases ahead.