For those seeking a steady source of income in the form of dividends, pharmaceutical heavyweight AbbVie (NYSE:ABBV) and healthcare conglomerate Johnson & Johnson (NYSE:JNJ) both have plenty to offer. Since its spinoff from parent company Abbott Laboratories at the start of 2013, AbbVie has handily outpaced the broad market. Johnson & Johnson's stock performance over the same period is less encouraging, but there isn't a company in healthcare that can beat its 53-year history of raising dividend payments.
Smart investors know that past performance is a helpful indicator but base their decisions on forward-looking considerations. Let's look down the road at both companies and see which is most likely to provide you with steadily increasing income over the long term.
Even ahead of the spinoff, analysts had been predicting doom and gloom for AbbVie once its blockbuster anti-inflammatory drug Humira faces biosimilar competition in the United States. At more than 60% of total revenue, there's a lot to be concerned about.
When the company reported third-quarter earnings, the headline numbers were encouraging, but what stoked the market was assurance from CEO Rick Gonzalez that an army of patent lawyers is prepared to secure Humira's future.
In the U.S., which generates more than 60% of Humira sales, AbbVie's main composition-of-matter patent expires at the end of next year. That's the bad news.
But AbbVie's legal department has been working around the clock since the spinoff. The company now claims a whopping 75 patents related to Humira. This list includes 16 that are indication specific, the first of which don't expire until 2022. During the third-quarter conference call, Gonzalez practically dared competitors to infringe on one, noting enormous potential damages given Humira's success, and a tendency for courts to issue preliminary injunctions in similar cases.
Confident in its ability to keep biosimilar competition at bay, the company is forecasting 2020 annual Humira sales above $18 billion. That's about 23% above the current run rate of $14.6 billion, and well over Wall Street's 2020 estimates of $13.3 billion.
Humira isn't the only near-term growth driver in AbbVie's stable of marketed products. An inferior safety profile will probably keep sales of its hepatitis C treatment, Viekira Pak, from approaching those of Gilead Sciences. However, an exclusive deal with America's largest pharmacy benefit manager, Express Scripts, allowed Viekira Pak to contribute $469 million in the third quarter. If Express Scripts continues to exclude Gilead's Sovaldi and Harvoni from its formulary in favor of Viekira Pak, even after a recent FDA safety warning, sales of Viekira Pak are expected to reach $2.5 billion next year.
A more solid near-term growth driver is recently-acquired blood cancer therapy Imbruvica, marketed in partnership with Johnson & Johnson. AbbVie's share of sales is tracking at an annual run rate of $1.2 billion. The FDA is currently mulling a label expansion to first-line leukemia based on successful results from the Resonate-2 study. If approved, AbbVie's prediction that the therapy will contribute $5 billion to its top line by 2020 begins to hold water.
Slow but steady
While AbbVie is depending on litigation and formulary exclusions to protect much of its revenue stream, Johnson & Johnson's consumer segment made up nearly 20% of the company's top line this year. Band-Aids and Tylenol aren't growing fast, but we can reasonably expect their decades-long march upward to continue well into all of our retirement years.
The company's medical-device brands are less familiar to the general public, but this unit effectively leverages its size and reach to maintain leadership roles in surgery and orthopedics.
While growth in the consumer and medical-device segments steadily inches upward, the company's pharmaceutical segment is the most exciting. Recent launches such as Invokana, Imbruvica, and Xarelto are just beginning to blossom. Label expansions for these, along with older programs such as Stelara, should provide robust growth in the years ahead.
To all their own
Aggressive dividend increases -- strongly outpacing Johnson & Johnson's -- in the quarters following AbbVie's spinoff show the new company is committed to increasing shareholder value. However, a look at the percentage of profits required to make those dividend payments -- a metric called the payout ratio -- is enough to make any dividend investor nervous.
For those of us closer to retirement, the stability Johnson & Johnson's diversification provides is an enormous advantage. AbbVie's potential for growth in the years ahead is tempting, but the overhanging risk of Humira competition might not be worth the extra anxiety.
Cory Renauer owns shares of Abbott Laboratories and Johnson & Johnson. The Motley Fool owns shares of and recommends Express Scripts. The Motley Fool recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.