If you're looking for better-than-average dividend yields, there's a pharmaceutical stock you need to take a look at. At recent prices, AbbVie (ABBV 0.25%) offers a 4.1% dividend yield that's impossible to ignore.
Over the past year, the average dividend-paying stock in the S&P 500 index delivered a lousy 1.3% yield. If the big yield AbbVie offers seems a little too good to be true, it's because there's a catch.
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Why the above-average yield?
In a nutshell, fear of declining sales for AbbVie's lead drug, Humira, is the reason AbbVie offers a huge dividend yield that is more than double the benchmark average. It's been 20 years since the FDA first approved this injectable drug for the treatment of rheumatoid arthritis. U.S. Humira sales contributed $4.6 billion to AbbVie's top line during the third quarter, so replacing lost revenue from this drug is going to be a major challenge.
Biosimilar competition in the EU broke through the thicket of patents AbbVie built around Humira in 2018. As a result, international sales fell from $4.9 billion in the first nine months of 2018 to $2.6 billion in the first nine months of 2021.
The FDA has already approved several biosimilar versions of Humira, including Amjevita from Amgen, which is expected to launch in early 2023. By the end of 2023, AbbVie will have to contend with at least half a dozen more Humira biosimilars.
Rinvoq and Skyrizi to the rescue
It's hard to know how far Humira sales could fall over the next few years. That said, we can be fairly certain it won't stop AbbVie from making and raising its dividend payout. That's partly because a pair of more recently launched anti-inflammatory drugs are poised to offset the losses.
Rinvoq is a treatment for rheumatoid arthritis that AbbVie launched in 2019. The once-daily tablet is already so popular that sales reached $1.7 billion last year. Skyrizi also launched in 2019 as a treatment for psoriasis and it's rising straight to the top. This is an antibody that patients only need to inject once every 12 weeks to keep their skin clear.
Skyrizi has quickly become one of the most popular drugs in the psoriasis space with $2.9 billion in sales last year. Label expansions in and outside of the U.S. recently gave AbbVie the confidence to predict over $15 billion in combined annual sales from Rinvoq and Skyrizi by 2025.
Skyrizi and Rinvoq aren't the only relatively reliable growth engines in AbbVie's product lineup. Annual aesthetics sales, largely driven by the Botox brand are expected to pass $9 billion in 2029.
AbbVie's atypical antipsychotic treatment, Vraylar finished 2021 at an annualized run rate of around $2 billion. AbbVie expects Vrylar sales to approach $4 billion with its current addressable patient population. An application the company expects to send the FDA in the first half of 2021 could expand that population to include millions of people with clinical depression.
Room for raises ahead
AbbVie raised its dividend payout by 250% since its inception in 2013. With Rinvoq, Skyrizi, and Vraylar driving growth, the next nine years could be just as exciting.
Despite hiking its payout, AbbVie was able to meet its obligation using just 42% of the free cash flow its lucrative pharmaceutical operations generated over the past year. With a dividend program already on solid footing and new drugs driving growth, AbbVie looks like a great dividend stock to buy right now.
