AbbVie's (NYSE:ABBV) Dividend Will Be Increased To $1.64

AbbVie Inc.'s (NYSE:ABBV) dividend will be increasing from last year's payment of the same period to $1.64 on 14th of February. This makes the dividend yield 3.9%, which is above the industry average.

Check out our latest analysis for AbbVie

AbbVie's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, AbbVie's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

AbbVie Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $1.60 in 2014 to the most recent total annual payment of $6.56. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

AbbVie May Have Challenges Growing The Dividend

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that AbbVie has been growing its earnings per share at 5.7% a year over the past five years. 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

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. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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.