Can AbbVie Stock Keep Outpacing the S&P 500?

Pharma stocks haven't been outstanding investments since the central bank began hiking rates in 2022. The core reason is that these companies depend on innovation to create value for shareholders -- an inherently risky endeavor.

AbbVie (NYSE: ABBV) has been one of the few exceptions to this trend. Despite losing exclusivity for its flagship immunology medication Humira in the U.S. in 2023, the drugmaker's shares are up by a healthy 30% over the past 12 months (total return, including dividends), even outpacing the red-hot S&P 500.

ABBV Total Return Level

Can AbbVie keep beating the broader market? Let's dig in deeper to find out.

This top dividend growth stock is attractively priced

Even though AbbVie's stock has been a strong performer, the company's shares only trade at 15.2 times forward earnings. That's a significant discount, compared to the 22.6 multiple of the S&P 500.

Why Is AbbVie stock cheap? AbbVie is going through a multiyear product churn at the moment.

A doctor using a tablet that's projecting a 3D image.

The drugmaker is pivoting toward its newer immunology medications, Skyrizi and Rinvoq, as Humira's sales plunge. To date, this transition has gone far better than most expected but is an inherently risk-laden process.

But there are several compelling reasons to be optimistic about AbbVie's future. The company's neuroscience portfolio, for instance, has been turning in exceptional performance of late.

To wit, Vraylar, a drug indicated for major depressive and bipolar 1 disorders, generated nearly $700 million during the first quarter of 2024, an increase of 23.6% over the same period a year ago. AbbVie's $10 billion acquisition of ImmunoGen last fall also added Elahere to its oncology portfolio. Elahere, an antibody drug conjugate, is forecast to top $2 billion in sales by the end of the decade, according to analysts at Barclays.

Best of all, there is AbbVie's rock-solid dividend. Since becoming an independent company in 2013, AbbVie has boosted its dividend by over 285%, putting it in elite company in terms of dividend growth.

But that's not all. AbbVie also pays a rather generous 3.63% yield at current levels, a figure that towers over the 1.35% average yield of the benchmark S&P 500 index.

The one cautionary note is that AbbVie's payout ratio has swelled to 178% this year.

Most analysts think the company's favorable growth profile post-2025 puts its dividend on safe ground. But AbbVie may have to tamp down its blistering dividend growth rate while this process unfolds.

Verdict

While next-generation immunology drugs are important threats to AbbVie's core area of expertise, the company's demonstrated resilience is a net positive for shareholders. After all, AbbVie has weathered this storm exceptionally well and is still in the early innings of several critical drug launches.

The big picture is that the company should return to high-single-digit revenue growth by 2026, according to multiple analysts. While Humira's dramatic fall remains a key overhang, AbbVie appears to be moving in the right direction. Consequently, the drugmaker's stock is a top dividend stock to consider buying right now.

Should you invest $1,000 in AbbVie right now?

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.