AbbVie (ABBV 0.76%) is a large drug company with a somewhat unusual portfolio of products, spanning immunology (Skyrizi and Rinvoq) to esthetics (Botox). However, for many investors, the big draw is going to be the dividend. With a currently high yield and strong cash flow, AbbVie could provide dividend lovers with reliable income for years to come.
AbbVie's yield is attractive
The S&P 500 index has a paltry yield of 1.1% today. The average pharmaceutical company, using iShares U.S. Pharmaceuticals ETF as an industry proxy, yields 1.7%. AbbVie's dividend yield is now 2.9%.
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That means that AbbVie investors are collecting 1.8 percentage points more yield than the broader market, and 1.2 percentage points more than the average pharmaceutical stock. Those are big differences. Owning AbbVie will generate more than double the income of an S&P 500 index fund, and 70% more income than the average drug stock.
If you're a dividend investor trying to live off the income your portfolio generates, those facts could lead to life-changing outcomes.
Can AbbVie keep paying?
The big question investors have to ask is whether AbbVie's dividend is sustainable. Looking backward, the trend has been toward reliable dividend growth, with over a decade of it on the books. Over that span, the dividend has increased by 200%. That's a huge number, and it probably isn't reasonable to expect that kind of dividend growth over the long term. However, the company has shown a clear commitment to rewarding investors with growing dividends.
NYSE: ABBV
Key Data Points
The problem comes when you look at the payout ratio, which is over 100%. However, dividends come out of cash flow, not earnings. Looking at the cash dividend payout ratio, which compares dividends to cash flow from operations, the picture is much better, with a ratio of around 60%.
Notably, the company's esthetics business provides a stable foundation for cash flow. Botox no longer enjoys patent protection, but consumers value brand names in the esthetics space. That suggests that AbbVie's business could be impacted less than other drugmakers' by the industry's normal patent cycles.
AbbVie could help power your dividend portfolio
AbbVie could add healthcare diversification to your dividend portfolio. And it appears to be able to do so while offering an attractive yield and a growing dividend stream. If you're a long-term investor, this high-yield drug stock could be a solid addition to a diversified, income-focused investment approach.
