Last update on 2024-06-27

AbbVie (ABBV) - Dividend Analysis (Final Score: 4/8)

In-depth dividend analysis of AbbVie (ABBV) using an 8-criteria system. Final Score: 4/8. Assess performance, reliability, and stability to maximize dividends.

Short Analysis - Dividend Score: 4

We're running AbbVie (ABBV) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis for AbbVie (ABBV) looked into 8 key criteria to understand its performance and stability. Here’s a simplified breakdown: AbbVie’s dividend yield is higher than the industry average, which is good news for potential returns. Its dividend growth rate shows high potential but is quite volatile. The payout ratio has often been higher than the recommended 65%, raising some concerns about sustainability. Dividend coverage by earnings and cash flow generally look positive, especially the latter. AbbVie started paying dividends in 2013 so it doesn't meet the 25-year mark yet but it has been fairly stable since starting except for a small dip in 2020. The company does buy back some of its shares, but the activity is somewhat inconsistent over the years.

Insights for Value Investors Seeking Stable Income

Considering this analysis, AbbVie seems to have both strengths and weaknesses in its dividend policy. The higher-than-average dividend yield and solid free cash flow coverage are big positives. However, the unstable growth rate and high payout ratios might be red flags for conservative investors. If you’re an investor who can tolerate some risk for potentially higher returns, AbbVie’s dividends could be worth exploring. Always consider doing comprehensive additional research or consulting a financial advisor before investing.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is the ratio of a company's annual dividend compared to its share price. A higher dividend yield is generally favorable as it indicates potential higher returns on investment for a shareholder.

AbbVie's current dividend yield of 3.8201% is higher than the industry average of 3.29%, which is a positive indicator. Over the past 15 years, AbbVie's dividend yield has shown an increasing trend from 3.0297% in 2013 to its current level, peaking at 6.0425% in 2019. This reflects AbbVie's consistent and growing commitment to returning value to shareholders. This trend is favorable and suggests that AbbVie prioritizes shareholder returns.

Average annual Growth Rate higher than 5% in the last 20 years?

Criterion 1.1 assesses whether AbbVie (ABBV) has had a Dividend Growth Rate higher than 5% over the past 20 years. This is a crucial metric as it helps investors gauge the company's ability to consistently increase its dividend payouts, reflecting financial health and a shareholder-friendly policy.

First, it's essential to consider that AbbVie was spun off from Abbott Laboratories in 2013, which is why dividends are zero before this date. From 2014 to 2023, we see significant volatility in the Dividend Per Share Ratio, with the highest ratio reaching 49.0251 in 2019 and a notable negative ratio of -11.7757 in 2020. The growth rate calculation faces difficulties due to this volatility and data abnormalities. However, from 2014 onwards, the dividends increase notably until the maximum in 2019 and then decrease again. According to the Average Dividend Ratio of 10.1112, the dividend growth is impressive potentially above the 5% annual threshold when averaged over the decade but heavily fluctuates. Given these interpretations, AbbVie's dividend policy in this period shows instability but also high potential average growth. This trend is neither strictly good nor bad but indicates high risk-reward for potential investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

Payout Ratio measures the proportion of earnings paid out as dividends. A lower ratio (below 65%) indicates sustainability and room for growth.

Over the last 15 years, AbbVie's payout ratio has been inconsistent and often exceeded the desirable threshold of 65%. Notably, values spiked in years such as 2014 (150.65%), 2020 (180.49%), and 2023 (214.98%). Although the average payout ratio stands at approximately 78.29%, years with extremely high ratios raise concerns about dividend sustainability, especially during economic downturns or lower profit periods. Despite a few years where the payout was sustainable, the overall trend is worrisome for long-term dividend growth.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings typically suggests that a company generates enough profit to support its dividend payouts. This is important to assure investors of the sustainability of dividends.

Looking at the data from 2013 onwards (when AbbVie started paying dividends), we observe variability in the dividend coverage ratio. In 2013, the ratio stood at approximately 0.62, indicating lower coverage. However, improvement is seen in subsequent years, reaching stability around 0.97 to 1 by 2018 and an erratic trend afterwards. Particularly notable are 2019 with a high coverage of 1.01 and the dip in 2020 to 1.80 ratio as against a standard of approximately 0.62 in years linking back to 2013. `ebroidered statement in last produced high values`. The spike in 2023 to 2.15 suggests that the earnings more than covered the dividends well, indicating strong profitability momentarily amidst erratic fluctuations, which needs comprehensive scrutiny. While recent trends are encouraging for dividend investors, consistency remains a concern.

Dividends Well Covered by Cash Flow?

covering dividends through cash flow ensures that the company is able to sustain its dividend payouts without relying on external funding.

AbbVie's free cash flow has shown a robust upward trajectory over the years, from $5.05 billion in 2009 to a peak of $24.25 billion in 2022, slightly retracting to $22.06 billion in 2023. This augmentation in free cash flow showcases AbbVie's improved operational efficiency and cash generation capabilities. Examining the dividend payouts, they began in 2013 with $2.56 billion and have steadily grown to $10.54 billion in 2023. Although the payout amount has increased annually, what's notable is how this intersects with the free cash flow figures. The ratio of dividends covered by free cash flow started at around 44.23% in 2013. This ratio has seen fluctuations over the decade, reaching its highest at around 90.60% in 2014, then stabilizing to an extent, and registering at about 47.77% in 2023. The trend underscores two key aspects: AbbVie's concerted effort to return capital to its shareholders while still maintaining a robust cash flow. Despite the variances, the coverage always remains less than 100%, implying that AbbVie does not require external financing to meet its dividend obligations. This is a positive indicator, harmonizing shareholder interests with the company's financial health and operational efficacy. Maintenance of a comfortable coverage ratio beyond 20% further depicts resilience even under potential financial adversities, compositing a sustained potential for dividend payouts.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments is crucial for income-seeking investors as it indicates the reliability and consistent performance of a company, helping in financial planning and providing assurance of sustained income.

Based on the provided data, AbbVie started paying dividends in 2013 at $1.6 per share and incrementally increased them almost every year after, reflecting a strong commitment to shareholders. However, in 2020, the dividend per share fell to $4.72 from $5.35 in 2019, a drop of approximately 12% but did not exceed the 20% threshold. Despite this slight drop, AbbVie has demonstrated substantial dividend growth overall, suggesting a good trend for income-seeking investors. No particular year saw a drop exceeding the 20% threshold, which supports the company's stability in dividend payments.

Dividends Paid for Over 25 Years?

Examining a company's history of dividend payments, including consistency over 25 years or more, helps gauge its reliability and long-term financial health.

AbbVie's dividend payment history spans from 2013 onwards, beginning with a dividend per share of $1.6. Since then, dividends have consistently increased to $5.92 in 2023. Although this trend reveals strong growth and a commitment to rewarding shareholders, the company does not meet the 25-year history criterion as it has not been paying dividends for that long. Therefore, while the trend is good, AbbVie fails the long-term reliability measure of dividends paid over 25 years.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate the company's commitment to return value to shareholders by reducing the number of outstanding shares, which can lead to an increase in EPS and stock price.

Analyzing AbbVie's number of shares over the past 20 years provides insights into the company's repurchase activities. The data indicates a mixed trend in share count over these years. From the given figures, we observe that the share count was stable around 1.58 billion shares from 2009 to 2011 but showed fluctuations thereafter. In particular, the years when AbbVie demonstrated consistent stock repurchases include 2012, 2016, 2017, 2018, 2019, and 2023. For instance, there was a notable reduction from 1.637 billion shares in 2015 to 1.606 billion in 2017 and further down to approximately 1.481 billion in 2019. However, an increase to 1.765 billion shares is seen in 2020, possibly due to stock issuance related to the acquisition of Allergan. Overall, the average share repurchasing rate of 0.9258 over 20 years signifies a reasonable but not exceptional pace of buybacks. While the data shows good periods of repurchases, including a notable decline from 2016 to 2019, the stability in recent years and the spike in 2020 undercuts a fully positive trend. Consequently, AbbVie’s share repurchase reliability can be considered moderately good, but not consistent over two decades, prompting scrutiny of its strategic capital allocation moves. This trend is seen as a reasonable but not strongly positive indicator of shareholder value return through buybacks.