AbbVie (NYSE:ABBV) is inexpensive and has a very attractive potential dividend yield. In addition, the growth prospects for this pharmaceutical company are high. As a result, ABBV stock is probably worth a lot more than the September 17 price of $ 107.73.
ABBV is essentially flat for the year as it closed 2020 at $ 107.15. But that was after it hit a closing price of $ 120.78 on Aug.31. Since then, the stock has fallen about 10.8%.
The reason for this decision is that the FDA now requires AbbVie’s RINVOQ, one of its successful arthritis drugs, to have a cardiac event risk label affixed to the dispensing vials. This could potentially reduce sales of the drug.
This is the bad news. Here is the Good News.
However, AbbVie is now in a good position for many value-oriented investors to buy its shares. One reason is that the company is likely to announce an increase in its dividend per share next month, based on its historical trends.
For example, on September 10, AbbVie just declared a quarterly dividend of $ 1.30 per share. But it usually advertises a higher payout for the next 12 months in late October or the first week of November.
For example, on October 30, 2020, AbbVie declared a dividend per share (DPS) of $ 1.30, which is 10.2% more than the previous quarterly DPS of $ 1.18 declared on September 11, 2020. This payment of $ 1.30 has been declared for 4 four quarters and now the next dividend declaration is expected to be 10% higher. This implies that by October 30, he could announce a DPS of $ 1.43 per share.
Growth in dividend per share
This makes the stock of ABBV very valuable. On the one hand, his potential annualized PSR of $ 5.72 represents a dividend yield of 5.3% on the current price of $ 107.73 per share.
On the other hand, it confirms that the company is constantly increasing its dividend. For example, In search of the alpha reports that its three-year history of dividend increases has averaged over 15.8% per year and over 18% per year over the past five years.
In addition, the dividend is likely to be well covered by potential profits. Analysts predict the company will earn $ 12.61 in 2021 and $ 13.83 in 2022. That’s according to 20 analyst reports polled by In search of the alpha. It also means that the 2022 dividend will be more than 150% hedged by forward-looking earnings per share (EPS).
Valuation of ABBV shares with dividend yields and P / E
One way to value a stock is to compare its current dividend yield to its historical yield. For example, over the past four years, ABBV stock has had an average dividend yield of 4.43%, well below the current dividend yield of 5.3% using the higher expected DPS of 5.72. $.
Therefore, in order to value the ABBV stock using its historical dividend yield, we divide the DPS of $ 5.72 by 4.43%. This equates to $ 133.02 per share and implies that the ABBV share is worth 23.5% more than its September 17 price of $ 107.73.
Another way to measure its value is to compare expected earnings per share (EPS) with its historical price-to-earnings (P / E) ratio. Now that AbbVie has completed the acquisition of Allergan, she is no longer so dependent on her arthritis medication, Humira. Therefore, the bad news from the FDA will not have as much of an impact on its BPA as it would have before the acquisition.
The morning star indicates that AbbVie’s 5-year average term P / E ratio is 10.4x. So if we multiply his 2022 EPS estimate of $ 13.83 by 10.4, the resulting price target is $ 143.83 per share. This is a 33.5% increase from today’s price.
Therefore, the average of the historical dividend yield model of $ 133.02 and the historical P / E model of $ 143.83 is $ 138.43. This represents an increase of 28.5% from today’s price.
What to do with ABBV shares
AbbVie should see good news with a higher dividend per share declaration next month. Once the market realizes that the company’s profits are not going to drop to zero, they could hit $ 138.43.
ABBV’s stock is currently at its lowest. It probably makes sense for value investors to either take a new position or reduce the average of their existing holdings. They can be assured that historically the action is worth much more.
As of the publication date, Mark R. Hake has no position on any stock (directly or indirectly) mentioned in the article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and run the Total Value of Return Guide that you can consult here.