Why AbbVie (ABBV) is a Great Dividend Stock Right Now

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

AbbVie in Focus

Headquartered in North Chicago, AbbVie (ABBV) is a Medical stock that has seen a price change of 9.36% so far this year. The drugmaker is currently shelling out a dividend of $1.18 per share, with a dividend yield of 4.87%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.56% and the S&P 500's yield of 1.92%.

Looking at dividend growth, the company's current annualized dividend of $4.72 is up 10.3% from last year. In the past five-year period, AbbVie has increased its dividend 5 times on a year-over-year basis for an average annual increase of 22.18%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, AbbVie's payout ratio is 51%, which means it paid out 51% 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 $10.50 per share, which represents a year-over-year growth rate of 17.45%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful 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 #1 (Strong Buy).

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