Stocks to buy

The stock market is rolling over as the third quarter comes to a close. The S&P 500 is down 21% year-to-date (YTD) as of this writing. Quality dividend stocks become even more valuable during bear markets, as their consistent earnings and high dividend yields help offset declining markets. This is why income investors should consider pharmaceutical giant AbbVie (NYSE:ABBV). Currently, ABBV stock is up 7% YTD, coming in second place in InvestorPlace’s Best Stocks for 2022 contest as of the end of Q3.

AbbVie stock has a 4% dividend yield, significantly above the S&P’s average yield of 1.7%. And, AbbVie has a long history of dividend increases. It is one of just 65 Dividend Aristocrats, and one of even fewer 45 Dividend Kings.

What’s Been Going on With ABBV Stock?

In the second quarter of 2022, AbbVie grew revenue by 4% from the same quarter last year. Growth is being fueled largely by the company’s newer drugs, including Skyrizi and Rinvoq. Earnings per share (EPS) increased 11% year-over-year (YOY), and surpassed the consensus analyst estimate by 6 cents.

AbbVie lowered guidance for the full year, and now expects adjusted EPS of $13.78-$13.98 for 2022. Even so, AbbVie is expected to remain highly profitable, which means its dividend remains well-covered. And the full-year earnings guidance still represents growth from last year. This will allow AbbVie to continue increasing its dividend each year, as it has done for 50 years going back to its time as a subsidiary of Abbott Laboratories (ABT).

The potential for a U.S. recession is a macroeconomic headwind, while company-specific risks includes the impending expiration of patent protection for its flagship drug Humira. Humira has already lost patent exclusivity in Europe and is set to lose exclusivity in the U.S. in 2023. As a result, generic competition will surely cause Humira sales to decline.

While AbbVie expects revenue to decline in 2023, the company predicts to return to growth in 2024 and beyond, due to a mix of organic investments in research and development (R&D) as well as growth through acquisitions. For example, AbbVie expects combined annual revenue of Skyrizi and Rinvoq to surpass $15 billion by 2025, which would eclipse the peak sales that Humira once had.

The Bottom Line

AbbVie is a blue-chip dividend stock with a secure dividend payout. Its expected payout ratio for 2022 is just 41%. The company also increases the dividend at a solid rate. AbbVie’s quarterly dividend payout has more than tripled since the spinoff from Abbott (NYSE:ABT).

I also expect AbbVie stock to generate positive future returns. The stock appears fairly valued with a forward price-to-earnings (P/E) ratio of 11. Still, the stock can produce satisfactory returns through earnings growth and dividends, even with a flat valuation multiple. First, the stock currently yields 3.9%. Second, I expect AbbVie to grow EPS by 2.5% per year over the next five years.

Combined, AbbVie is expected to produce total returns of 6%-7% annually over the next five years. The stock has a positive future outlook, a market-beating dividend yield, with a safe and growing dividend payout.

On the date of publication, Bob Ciura held a LONG position in ABBV stock. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.

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