AbbVie Inc.’s (NYSE:ABBV) dividend will be increasing from last year’s payment of the same period to $1.73 on 17th of February. This takes the annual payment to 3.0% of the current stock price, which is about average for the industry.
Unless the payments are sustainable, the dividend yield doesn’t mean too much. Prior to this announcement, the company was paying out 494% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 62%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 57%, which is in a comfortable range for us.
See our latest analysis for AbbVie
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $2.04 in 2015 to the most recent total annual payment of $6.92. This means that it has been growing its distributions at 13% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven’t been any cuts for a long time.
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. However, things aren’t all that rosy. AbbVie’s earnings per share has shrunk at 22% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we’ve identified 5 warning signs for AbbVie that you should be aware of before investing. Is AbbVie not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.












