AbbVie Inc. (NYSE:ABBV) will increase its dividend from last year’s comparable payment on the 14th of February to $1.64. This will take the annual payment to 4.0% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for AbbVie
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 216% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 74%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the dividend’s sustainability, despite the levels currently being elevated.
Even over a long history of paying dividends, the company’s distributions have been remarkably stable. The dividend has gone from an annual total of $1.60 in 2014 to the most recent total annual payment of $6.56. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. AbbVie has seen EPS rising for the last five years, at 5.7% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
In summary, while it’s always good to see the dividend being raised, we don’t think AbbVie’s payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we’ve picked out 3 warning signs for AbbVie that investors should take into consideration. 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.
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