We recently compiled the list of 25 Best Dividend Aristocrats Stocks According to Analysts. Since AbbVie Inc. (NYSE:ABBV) is part of our list, we have analyzed the stock in detail.
The age-old debate of investing in dividend growth or high-yield stocks continues to reappear within the dividend investing realm. Between these two, dividend growth is currently the favored option in the market as investors seek out strategies to grow their income over time. In this regard, investors turn to dividend aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. These stocks have delivered strong returns over the years regardless of market conditions. Between February 2005 and December 2023, dividend aristocrats delivered a 12.50% return in falling interest rate periods and an 11.5% return in rising interest rate periods, according to data by Bloomberg.
Numerous analysts have pointed out the long-term potential of dividend growth stocks, a sentiment echoed by Warren Buffett’s investment in Coca-Cola. Back in August 1994, Berkshire Hathaway completed its acquisition of 400 million shares in the company, worth $1.3 billion. Berkshire initially received a cash dividend of $75 million from Coca-Cola in 1994, the amount which surged to $704 million in 2022. This shows a remarkable growth potential of dividend-paying investments over the long term.
With investors showing a growing preference for dividend-paying stocks, major tech companies started initiating their dividend policies this year. Mark Iong, an equity fund manager at Homestead Advisers, expressed his approval of this move by tech companies in one of his recent interviews with Bloomberg. Here are some comments from the analyst:
“Dividends will be table-stakes for big tech going forward. I think if you don’t pay one, it will now be taken as a sign your business is more volatile. What’s exciting is they are doing dividends and buybacks simultaneously, while also cutting costs and growing, which is them stepping on the pedal for profits across the board.”
Not limited to the tech sector alone, companies across the broader market are showing a strong commitment to dividends this year. Though these equities lagged behind the market last year, their outlook remains strong this year. According to a recent report by S&P Dow Jones Indices, in the first quarter of 2024, companies in the index paid $151.6 billion in dividends, up from $146.8 billion paid during the same period last year. In addition, 796 companies reported dividend hikes during the quarter, amounting collectively to $22.7 billion. Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, expects that the index will report a 6% year-over-year increase in dividend payments in 2024.
Now, let’s take a look at some of the best dividend aristocrat stocks to buy according to analysts.
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Our Methodology:
For our list, we first scanned a list of the best dividend aristocrat stocks, which are the companies that have raised their dividends for 25 consecutive years or more. From this group, we picked stocks with a projected upside potential of over 10% based on analyst price targets. The stocks are ranked according to their upside potential, as of May 26. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
AbbVie Inc. (NYSE:ABBV)
Upside Potential as of May 26: 18.29%
AbbVie Inc. (NYSE:ABBV) currently pays a quarterly dividend of $1.55 per share, which translates into a 3.95% dividend yield for its stock. It is one of the best dividend aristocrat stocks on our list as the company has a history of dividend growth that spans five decades.
With a collective stake value of nearly $2.8 billion, 70 hedge funds tracked by Insider Monkey held positions in AbbVie Inc. (NYSE:ABBV) at the end of the first quarter of 2024, down from 76 funds in the previous quarter. With over 2.4 million shares, Adage Capital Management was the company’s leading stakeholder at the end of March.
Over the past 52 weeks, AbbVie Inc. (NYSE:ABBV)’s stock appreciated by 18% as investors were pleased with how the company handled the patent expiration of Humira. Humira was a blockbuster drug, having generated $21 billion in sales at its peak in 2022. However, as the patent for the drug expired last year, AbbVie Inc (NYSE:ABBV) saw its sales plummet. However, the management was prepared and managed to offset the drop in Humira sales, which had previously accounted for roughly one-third of the company’s top line. Two other drugs, Skyrizi and Rinvoq, saw sales grow to $11.7 billion last year and AbbVie Inc (NYSE:ABBV) projects sales to reach $16 billion in 2024 and grow to $27 billion by 2027 and maintain this trajectory in the following years. Combined with other products AbbVie has in its pipeline, we can expect the company to resume growth going forward.
AbbVie Inc (NYSE:ABBV) does have quite a lot of debt, which it used to make some acquisitions, such as the Botox-maker Allergan, for which it paid $63 billion in 2019. However, the company is generating enough cash at the moment to stay on top of its debt. If the company returns on a growth path driven by higher sales of Skyrizi and Rinvoq, the company might even be able to cut down its debt. So far, the stock growth suggests that investors are not worried and the 14.4 forward P/E ratio suggests that the stock is still an attractive investment opportunity.
Overall ABBV ranks 10th among the best dividend aristocrat stocks according to analysts. You can visit 25 Best Dividend Aristocrats Stocks According to Analysts to see other dividend aristocrats that are on analysts’ radar. While we acknowledge the potential of dividend growth stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
