This is Why AbbVie (ABBV) is a Great Dividend Stock

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

Cash flow can come from bond interest, interest from other types of investments, and of course, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

AbbVie in Focus

Based in North Chicago, AbbVie (ABBV) is in the Medical sector, and so far this year, shares have seen a price change of 4.02%. The drugmaker is currently shelling out a dividend of $1.18 per share, with a dividend yield of 5.12%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.57% and the S&P 500's yield of 2.11%.

In terms of dividend growth, the company's current annualized dividend of $4.72 is up 10.3% from last year. AbbVie has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 21.75%. 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. AbbVie's current payout ratio is 51%, meaning 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 $10.71 per share, with earnings expected to increase 19.80% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. That said, they can take comfort from the fact that ABBV is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).

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