This Dividend Aristocrat Should Put Your Portfolio on the Mend

One of our top-ranked Dividend Aristocrats right now is AbbVie Inc. . AbbVie is a pharmaceutical giant with an attractive dividend yield of 4.5%. Even better, AbbVie has a long runway of growth up ahead, which should result in continued dividend increases. For many years, AbbVie has primarily been known for its top-selling drug Humira, which at one point was the best-selling drug in the world. Humira grew with a compound annual growth rate of more than 12% from 2011 through 2018, when the drug hit its peak sales of $19.8 billion. Sales for Humira were up slightly in 2020 compared to the prior year, but still below 2019 results. Humira is unlikely to takeout its peak sales figure from a few years ago as the drug has already lost patent protection in most international markets. While it still maintains patent protection in the U.S., that will also expire out in 2023. Biosimilar competition is already eating into results for international markets, which were down more than 8% in the first quarter of the year, but U.S. Humira sales were higher by 6.9%. Domestic sales represented approximately a third of total sales. Humira accounted for 43% of revenues in 2020 and less than 38% of revenues in the most recent quarter, showing that AbbVie is still largely depending on the drug. The company expects Humira to produce just $6.5 billion in revenue by 2025, a sizeable sum to be sure, but a far cry from peak sales of almost $20 billion. For most health care companies, a drug contributing this much of total sales that still hasn't faced its harshest patent cliff would be a catastrophe. Fortunately, AbbVie isn't most other health care companies. It has a very promising pipeline that should more than offset the expected decline in Humira revenues. Currently, Imbruvica is the company's second best-selling product and showed nearly 14% growth in 2020, generating more than $5 billion in sales last year. Imbruvica, which AbbVie shares with Johnson & Johnson , is expected to see peak sales of more $7 billion by 2025. Two additional potential blockbusters that investors should focus on are Skyrizi and Rinvoq, both of which are used for treatment in the area of immunology. Both products generate just a fraction of total revenues at the moment, $1.6 billion for Skyrizi and $731 million for Rinvoq last year, but the projected growth rates are very high. Already, the two products have experienced the doubling of sales over the past few years. This has been driven by higher uptake rates as well as additional approvals for use. For example, Skyrizi is second only to Humira in terms of market share for treatment of psoriasis and Rinvoq already accounts for 15% of the rheumatoid arthritis market share. The two products are also in the process of being approved for other uses, such as for psoriatic arthritis for Skyrizi and severe atopic dermatitis for Rinvoq. AbbVie expects both products to receive multiple approvals over the next few years as well as a higher market share in already-approved indications. Skyrizi and Rinvoq are projected to produce combined revenues of more than $15 billion by the middle of this decade, and not reach peak sales until the early 2030s. This is an incredibly long run away for growth for these two products. AbbVie has also made acquisitions over the years to help bolster its portfolio. The most recent major acquisition was the $63 billion takeover of Allergan, which added $2.6 billion to total sales in 2020. This portfolio, led by Botox Cosmetic, which is trademarked and faces no patent expiration, could see as much as $6 billion in total sales by 2025. Finally, AbbVie has numerous drugs and products coming to market over the next few years and projects to have as many as a dozen billion-dollar franchises. While Humira will see just a fraction of its peak sales by the middle of the decade, AbbVie expects to produce almost $58 billion in 2025. For context, the company was just shy of $46 billion in revenue last year. We believe that the combination of the company's pipeline and the purchase of Allergan will allow AbbVie to grow earnings at a rate of 3% annually over the next five years. Prescription for Solid Returns AbbVie trades for $114 at the moment. Using the midpoint of company guidance for the year of $12.47, AbbVie has a price-to-earnings ratio of 9.1. We feel a target price-to-earnings ratio of 10 is appropriate given the expected benefits of the company's pipeline offset by the impending decline in Humira revenues. Reverting to our target valuation would add 1.9% to annual returns through 2026. Finally, AbbVie's dividend will be a significant factor in total returns going forward. Counting the years AbbVie was part of Abbott Laboratories, the company has a dividend growth streak of 49 years. The company's dividend has a compound annual growth rate of almost 25% since 2013. The most recent increase was just above 10%. Just as important, the expected dividend payout ratio for 2020 is just 42%, below the five-year average payout ratio of 46%. This should allow for additional increases in the future. AbbVie yields 4.6% as of the most recent close. Therefore, total returns would consist of the following: 3% earnings growth 1.9% multiple expansion 4.6% dividend yield AbbVie is projected to return 9.5% per year over the next half-decade. An expected rate of return of 9%-10%, including a high dividend yield, indicates the stock is an attractive buy right now. (ABBV is a holding in Jim Cramer's Action Alerts PLUS member club. 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This Dividend Aristocrat Should Put Your Portfolio on the Mend

High-quality drugmaker AbbVie has several promising products aside from Humira and the market has priced the stock at a bargain.

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