Healthcare stocks are appealing for dividend growth investors on many fronts. First, the top U.S. healthcare companies generate huge cash flow each year, regardless of the state of the economy. Their recession-resistant businesses allow them to keep raising their dividends each year.
Second, the U.S. healthcare market is attractive for long-term investment because the industry will benefit from a major structural trend—the aging population. This means demand for healthcare is only going to rise in the years ahead.
As a result, we believe many healthcare stocks are attractive for income investors, especially AbbVie Inc. (ABBV). AbbVie is one of our top-ranked healthcare stocks to buy and hold for the long-term.
AbbVie is a biotechnology company focused on developing and commercializing drugs for immunology, oncology and virology. It was spun off by Abbott Laboratories (ABT) in 2013.
The company has generated impressive growth over the course of 2021. In the third quarter, revenue of $14.3 billion increased by 11% from the same quarter last year. Revenue beat analyst expectations as the company saw particularly strong growth in its new products.
Earnings-per-share of $1.33 for the quarter rose by 18% year-over-year. Earnings-per-share also exceeded analyst consensus estimates. The company also raised its full-year guidance, now expecting adjusted EPS in a range of $12.63 - $12.67 for the full year.
There is some concern among investors about the future of AbbVie’s growth, as its flagship product Humira is set to face patent expiration in the U.S. in 2023. Patent expirations are a big risk for pharmaceutical companies.
As Humira accounted for over 40% of AbbVie’s total revenue as recently as 2020, it is critical that the company develops new products to replace lost sales from patent expirations.
One reason is the concern over AbbVie’s Humira patent expiration in the US in 2023. Humira generated 43% of AbbVie’s total revenue last year. However, AbbVie has done its best to ensure for a smooth transition after Humira’s patent expires in the U.S.
Growth in the Pipeline
Despite the challenge posed by the loss of exclusivity on Humira, we believe AbbVie has long-term growth potential. AbbVie has plenty of growth in the pipeline, both its own pipeline as well as through acquired products. First, AbbVie’s own R&D has produced potential blockbusters like Skyrizi and Rinvoq which are projected to produce combined revenues of more than $15 billion by the middle of this decade, and not reach peak sales until the early 2030s.
These products have led AbbVie’s growth over the last year. Over the first three quarters of 2021, AbbVie’s global Immunology portfolio revenue increased 14%. Humira grew just 3.6%, but Skyrizi generated over 90% growth while Rinvoq sales more than doubled in the first three quarters.
AbbVie has also made acquisitions over the years to help bolster its portfolio. The most recent major acquisition was the $63 billion takeover of Allergan, which added $2.6 billion to total sales in 2020. This portfolio, led by Botox Cosmetic, which is trademarked and faces no patent expiration, could see as much as $6 billion in total sales by 2025.
Long-Term Dividend Holding
AbbVie is an appealing dividend growth stock. As the company has generated strong growth in revenue and earnings-per-share in recent years, it has followed suit by raising its dividend at an aggressive pace. AbbVie announced a dividend increase by 8.5% in October.
Looking back further, AbbVie’s dividend growth since it became an independent company has been very impressive. According to the company, since the company's inception in 2013, AbbVie has increased its quarterly dividend by more than 250%.
Going back to its days as a subsidiary of Abbott Laboratories, AbbVie is a member of the Dividend Aristocrats list, a group of 65 stocks in the S&P 500 Index that have increased their dividend for at least 25 consecutive years.
Shares currently yield 4.2%. This is a relatively high yield among healthcare stocks. Therefore, due to its high dividend yield and strong growth potential, we view AbbVie as a top healthcare stock to buy and hold for the long-term.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
Disclosure: The author is long ABBV
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