Why AbbVie (ABBV) is a Top Dividend Stock for Your Portfolio

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

AbbVie in Focus

AbbVie (ABBV) is headquartered in North Chicago, and is in the Medical sector. The stock has seen a price change of -15.15% since the start of the year. The drugmaker is currently shelling out a dividend of $1.18 per share, with a dividend yield of 6.28%. This compares to the Large Cap Pharmaceuticals industry's yield of 3.09% and the S&P 500's yield of 2.5%.

Looking at dividend growth, the company's current annualized dividend of $4.72 is up 10.3% from last year. AbbVie has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 20.99%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. AbbVie's current payout ratio is 48%. This means it paid out 48% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for ABBV for this fiscal year. The Zacks Consensus Estimate for 2020 is $10.53 per share, which represents a year-over-year growth rate of 17.79%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ABBV presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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