AbbVie (ABBV +2.55%) is a top pharmaceutical company with a broad mix of products in its portfolio. It also pays an attractive dividend, which yields 4% -- that's more than twice the S&P 500 average of 1.5%.
A big reason investors have liked the stock is the company's track record of increasing its payouts for years. And if you count the time when AbbVie was part of Abbott Laboratories, its streak of dividend increases technically goes back more than 50 consecutive years.
But there's a concerning trend that income investors should pay close attention to before deciding to add AbbVie to their portfolios.
NYSE: ABBV
Key Data Points
Its rate of dividend growth has been slowing
In October, AbbVie announced that it would be raising its dividend payment again. Investors will be collecting $1.55 per quarter, starting with the first payment of 2024, scheduled for Feb. 15. It amounts to a 4.7% increase in the dividend. It's a decent rate of increase, but it's also lower than what it has been in previous years.
Data source: Company filings. Chart by author.
AbbVie was more aggressive with its rate increases in previous years, and a decline isn't all that surprising; it would be difficult to keep a dividend growing at a rate of 10% and for it to still remain manageable without impacting the company's growth objectives.
The worry I'd have as an investor is that this trend could continue into the future, particularly as AbbVie has been focusing on acquisitions and other ways to bolster its growth prospects as it looks to offset the effects of declining revenue from its top-selling rheumatoid arthritis medication, Humira, which has begun losing patent protection.
Multiple multibillion-dollar acquisitions recently
Within just the past few months, AbbVie has announced two fairly large acquisitions. One was to acquire oncology company ImmunoGen for $10.1 billion, and another was an $8.7 billion purchase of neuroscience company Cerevel Therapeutics. Both moves will help the company enhance its pipeline and potentially help generate more growth in the future.
However, ImmunoGen generated less than $300 million in sales over the past four quarters, while Cerevel is a clinical-stage company; these acquisitions bolster AbbVie's pipeline, but there could still be a need for more acquisitions to strengthen its top line in the near term.
Humira has generated more than $11 billion in revenue over the first nine months of 2023, which is down 29% year over year. And as more competing products enter the market, that revenue will continue to decline. AbbVie does have Skyrizi and Rinvoq to fall back on, two other immunology drugs that it says can make up for the lost Humira revenue.
But investors will still be looking for the business to grow, not simply replace lost revenue. This is where there could be a need for AbbVie to pursue more acquisitions. And the risk for dividend investors is that if the company is spending heavily on acquisitions, the dividend may end up taking a back seat and become less of a priority for the company.
The concern about AbbVie's future growth prospects is a key reason why the healthcare stock only trades at 14 times its estimated future earnings; investors are hesitant to buy shares of the business, given its uncertain growth prospects.
Is AbbVie stock a buy?
A slowing dividend growth rate is a valid concern for long-term investors, but it's not enough of a reason to dissuade investors from buying shares of AbbVie. Finding a safe stock that pays a 4% yield and that increases its dividend by more than just a few percentage points isn't easy.
Although income investors should keep an eye on the dividend growth rate in the future, AbbVie remains a solid all-around stock to invest in, and it can be an ideal investment to hang on to for the long haul.
