Some traditionalist would say your home is your greatest wealth building asset. I would argue it is not. Others would say your income is your greatest wealth building asset. Thought there is a lot of truth to the statement, it is still not your greatest wealth building asset. So, what is your greatest wealth building asset? Everyone is born with it. Few realize its importance until they lose most of it. The asset is so priceless it can’t be bought. Your most valuable wealth building asset is time. [more]
Linked here is a detailed quantitative analysis of Walgreen Co. (WAG). Below are some highlights from the above linked analysis:
Company Description: Walgreen Co. is largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico. [more]
Linked here is a detailed quantitative analysis of Exxon Mobil Corporation (XOM). Below are some highlights from the above linked analysis:
Company Description: Exxon Mobil Corp., formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company. [more]
As dividend growth investors we understand the danger of focusing on high yield alone. Many, if not most, high yields are simply not sustainable over the long term. However, we often turn our heads to what can be an equally dangerous metric - high dividend growth rates. Like high yields, high dividend growth rates often are not sustainable. As a company grows and matures, incremental sales and earnings are harder to come by. So what is a good mix of yield and growth? [more]
For a dividend investor, there is not much worse than a stock that cuts or eliminates its dividend. Suddenly, the reason you purchased the stock no longer exists. Many dividend investors, myself included, have a hard and fast rule to immediately sell any stock held as income investment if it cuts its dividend. However, when a company freezes its dividend at the current rate, the decision is not as clear-cut. At this point you must look at alternative investments, along with the company’s current yield and future outlook. [more]
The Pocket Change Portfolio (PCP) was first introduced on September 13, 2008 as a real money dividend income portfolio funded by the "pocket change" earned from my various online endeavors. Each month I report on the portfolio's progress and dividends earned. Total dividends received during the month were... [more]
Linked here is a detailed quantitative analysis of Abbvie Inc. (ABBV). Below are some highlights from the above linked analysis:
Company Description: Abbvie Inc. is a global research-based pharmaceuticals business that emerged as a separate entity following its spin-off from Abbott Laboratories at the start of 2013. AbbVie's key drug is Humira for rheumatoid arthritis.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
ABBV is trading at a premium to all four valuations above. Since ABBV's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 58.0% premium to its calculated fair value of $32.41. ABBV did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
ABBV earned one Star in this section for 3.) above. ABBV earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 41 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $452 is below the $500 target I look for in a stock that has increased dividends as long as ABBV has. If ABBV grows its dividend at 5.0% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.68%. ABBV earned a check for the Key Metric 'Years to >MMA' since its 3 years is less than the 5 year target.
Memberships and Peers: ABBV is a member of the S&P 500 a Dividend Aristocrat. The company's peer group includes: Merck & Co. Inc. (MRK) with a 3.2% yield, Bristol-Myers Squibb Company (BMY) with a 2.7% yield, and Eli Lilly & Co. (LLY) with a 3.3% yield.
Conclusion: ABBV did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks ABBV as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $49.87 before ABBV's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 41 years of consecutive dividend increases. At that price the stock would yield 3.4%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.3%. This dividend growth rate is above the 5.0% used in this analysis, thus providing no margin of safety. ABBV has a risk rating of 1.75 which classifies it as a Medium risk stock.
Like all pharmaceutical companies, ABBV is faced with competition from generics, pricing restraints and R&D related risks. The company owns the best-in-class immunology drug Humira -- which accounts for about 50% of its sales. Humira's U.S. patent expires in late 2016. With Humira, the company is well-positioned to produce strong cash flows to support future development of drugs in the pipeline including new treatments for hepatitis C, cancer and other conditions.
ABBV's 2014 will likely be challenging as the company absorbs the impact of the loss of exclusivity on the lipid franchise (TriCor, TriLipix and Niaspan). The company announced that it has completed its phase III HCV (Hepatitis C compound) studies. The study showed positive results with cure rates of 92% after 12 weeks and 96% after 24 weeks. The high rates of response and tolerability along with low discontinuation rates are encouraging. ABBV remains on track to file for its HCV treatment early in the second quarter of 2014.
The stock's dividend metrics continue to deteriorate. Its Free Cash Flow payout of 280% (up from the last review of 267%) and Debt To total Capital of 71% (down from 81%) are well beyond my maximum acceptable level. In addition, ABBV is currently trading well above my calculated fair value of $32.41, as such, I will not be adding to my position at this time.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long ABBV (4.2% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
- Cincinnati Financial Corp. (CINF) Dividend Stock Analysis
- Exxon Mobil Corporation (XOM) Dividend Stock Analysis
- People's United Financial Inc. (PBCT) Dividend Stock Analysis
- Emerson Electric Co. (EMR) Dividend Stock Analysis
- More Stock Analysis
Linked here is a detailed quantitative analysis of Emerson Electric Co. (EMR). Below are some highlights from the above linked analysis:
Company Description: Emerson Electric Co. designs and supplies product technology, and delivers engineering services and solutions to a wide range of industrial, commercial and consumer markets around the world. [more]
It is not unusual after I publish a list of stocks to get a comment or two asking why those stocks and not these stocks. Often the real thrust of the question is why buy those low yield stocks when you can buy these high yield stocks. The answer involves risk and its management. [more]
At the end of each month I do an evaluation to determine which dividend stocks I will purchase in the following month. There is always a warm feeling of joy that comes over me when I buy one of my "favorite" dividend growth stocks. These are stocks that have earned a special place in my heart and they all have one thing in common - they grow their consistently grow their dividends each year. [more]
Linked here is a detailed quantitative analysis of Cincinnati Financial Corp. (CINF). Below are some highlights from the above linked analysis:
Company Description: Cincinnati Financial Corp. is an insurance holding company that primarily markets property and casualty coverage. It also conducts life insurance and asset management operations. [more]
In 1993, State Street Global Advisors launched the first exchange-traded fund (ETF). Now there are literally hundreds of ETFs out there covering sectors, countries, popular indexes and various strategies, including income investing. A frequent question that I get is 'Why do you invest in individual dividend stocks instead of income-based ETFs?' On the surface this seems like a reasonable question since most ETFs are indexed, tax efficient, easily traded, passive and have low expense ratios. However, as we look beyond the ETFs luster, there are several significant reasons why many income investors prefer owning individual stocks... [more]
In the U.S. and Canada, most companies pay dividends quarterly. In other parts of the world, it is not uncommon for companies to pay an annual or a semi-annual dividend. That is not to say that North American companies sometimes choose not to pay quarterly dividends. For many years McDonald’s (MCD) paid an annual dividend. Since 2000, Walt Disney Co. (DIS) has paid an annual dividend and Ruby Tuesday, Inc. (RT) pays a semi-annual dividend. Going in the other direction, Realty Income Corp. (O) and Gas Natural Inc. (EGAS) pay monthly dividends. [more]
Once again it is time for a goals/progress update. I am pleased to report that annualized dividend income increased in January, extending the streak to 44 consecutive months of increases after June 2010's decline. Since I began publicly tracking annualized dividend income in November 2007, it has increased in 73 of the last 75 months. [more]
Linked here is a detailed quantitative analysis of Verizon Communications Inc. (VZ). Below are some highlights from the above linked analysis:
Company Description: Verizon Communications Inc. is the largest U.S. wireless carrier, Verizon also offers wireline and broadband services primarily in the northeastern U.S. [more]
Linked here is a detailed quantitative analysis of 3M Company (MMM). Below are some highlights from the above linked analysis:
Company Description: 3M Co. is a diversified global company provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical additives. [more]
At one time or another, we all have thought, 'If only knew this when I was younger.' I purchased my first dividend stock for income in 2003. Like many newly converted income investors, I was chasing yield. I quickly built a portfolio consisting of Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs) and high yield, high risk stocks. My portfolio’s yield was consistently in the low to mid-teens. Eventually, after some unnecessary losses, I learned there was a better way to invest in dividend stocks. Here is what I learned... [more]
With all the other investment strategies out there, why should investors consider dividend or income investing? There are a multitude of reasons to follow a dividend growth strategy. These include: investment stability, security of cash, continuous feedback, potential higher returns, low maintenance, et. al. But for me the most important reason is the inflation hedge that a growing income will provide in my retirement years. [more]