The moment AbbVie's (ABBV 0.43%) shareholders have been dreading for years is finally coming. In late January, the company will start facing generic competition in the U.S. for its best-selling product, immunology drug Humira. Humira has been AbbVie's key asset since it became a stand-alone company in 2013.
The pharma giant was able to survive Humira's loss of exclusivity in Europe in 2018 thanks to growing sales in the U.S. But the medicine's revenue will start dropping in the country soon, which could impact one of AbbVie's best selling points: the company's attractive dividend. Is it time for investors to look elsewhere?
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Management doesn't seem too worried
In October 2022, AbbVie announced a 5% dividend increase -- starting with the one that will be payable in February -- when it released its third-quarter earnings report. Management likely knew Humira's generics would have entered the market by then, so the dividend hike signals that the company isn't losing sleep over this issue. In fact, it seems AbbVie is confident that its business can handle more dividend growth even with the loss of exclusivity for its most prized asset.
Perhaps part of this confidence comes from AbbVie's ability to generate more than enough cash to cover its dividend payments. The company's cash payout ratio is currently about 45% -- where anything under 60% is generally considered good. So even a non-negligible decrease in AbbVie's cash flow generation that leads to its cash payout ratio increasing by a massive 15% wouldn't be catastrophic for the company's dividend.
Here is one more thing to consider: AbbVie is a Dividend King. The drugmaker has raised its payout for 50 consecutive years when counting the time it spent as a division of medical device giant Abbott Laboratories. Failing to increase its dividend for even one year would result in being knocked out of this highly exclusive club and having to start from scratch, perhaps joining the clique again in another 50 years. Needless to say, management wouldn't want that to happen.
And beyond its reasonable cash payout ratio, AbbVie and its shareholders have other reasons not to be worried.
Passing of the torch
AbbVie expects its top line to fall this year and the next, but it should return to growth by 2025. The company's most important products moving forward will be a pair of immunology drugs, Skyrizi and Rinvoq. Combined, these two medicines substantially overlap with Humira as they have won many similar approvals and indications. These two products haven't disappointed in terms of sales, either. AbbVie expects that to continue.
The company predicts over $17.5 billion in combined revenue for Skyrizi and Rinvoq in 2025. In the first nine months of 2022, that number came in at $5.3 billion. What's more, AbbVie's new growth drivers should exceed Humira's peak annual sales by 2027, generating more than $21 billion in revenue by then.
Beyond that, AbbVie will likely make headway in other therapeutic areas. For instance, the company expects its oncology sales to remain flat in 2024 and 2025, but as it earns new indications for cancer medicines such as Venclexta and Imbruvica, it should return to growth. Further, with dozens of programs across its pipeline, AbbVie should be able to add brand-new products and earn label expansions for many others.
While the end of Humira's era isn't great news, AbbVie seems more than ready to embark on a new one.
Still an outstanding dividend stock
AbbVie has raised its dividend by 270% since it went public in January 2013. That's an impressive track record. And even with Humira's loss of exclusivity looming, investors can be confident that the company will be able to fill that massive gap with products such as Rinvoq, Skyrizi, and others.
Eventually, revenue and profit growth will come back, and in the meantime, AbbVie can sustain and even increase its payouts. In short, those looking for a great dividend stock can still buy shares of this pharma giant.
