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Dividend yielding stocks: 1 we're buying and 1 we're watching

March 4, 2024
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FinMeUp
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FinMeUp

Analysis of two US dividend-yielding stocks added to the FinMeUp portfolio

 

AbbVie

AbbVie, Inc. is a multi-billion-dollar, research-based biopharmaceutical company, which engages in the development and sale of pharmaceutical products. The company was founded in 2011 and is headquartered in North Chicago, IL. 

Abbvies revenue streams include medical aesthetics, botox therapeutics, neuroscience, gastrointestinal, womens health, and eye care. Abbvie is best known for its mega-blockbuster drug Humira, which raked in more revenue than any other medicine in the world in 2020. 

When assessing companies for dividend and long-term holding purposes, its important to zoom out to get a perspective of the overall performance and potential of the entity. Here are some of the most important financial metrics for Abbvie:

  • Revenue: 
    • The average annual revenue growth since 2016 is 16.71%. 
    • Revenue of $56.2b in 2021 compared to $25.6b in 2016. More than doubled its revenue in just 5 years. Pretty impressive for a company of Abbvies size.
  • Gross profit: 
    • Steady at around 70% per year
  • Free cash flow: 
    • Average annual FCF growth since 2016 is 22.56%.
    • FCF yield steady at around 10%
    • FCF of $22.0b in 2021 compared to $6.5b in 2016
    • FCF valuation: FCF average past 5 years x 20 = expected market cap. [$14.75 x 20 = $295b, compared to current market cap of $263b, thus undervalued by 12%]
  • ROIC
    • Steady at around 20%. 
  • Dividends & payout
    • Dividend yield steady at around 4%. 3.84% in 2021
    • Paid quarterly to a total of $5.42 per share in 2021
    • Average annual dividend growth rate 18.44% since 2016. 10.17% in 2021.
    • Payout ratio of 80%, which is exactly what you want to see from a dividend driven investment
  • Debt:
    • Abbvie has fairly high debt levels. Though this is worrisome, the ratios are improving as the company has pledged to prioritise the repayment of its debt.

Abbvie boasts consistent high dividend yield and growth rates over many years. The financials, in addition the company having a low beta given the nature of the business, is all the validation we need to dip our toes in the water. FinMeUp will add Abbvie to its portfolio today. 

 

Apple

Apple Inc. is an American multinational technology company. It specializes in consumer electronics, software and online services headquartered in Cupertino, California, United States.

Apple is one of the most recognized brands in the world, has an exceptionally loyal customer base, and has relied on innovation to grow its sales for more than a decade. During Q4 2021, Apple's iPhone had a 34-percentage-point share lead over Samsung in the United States. The introduction of 5G capability to the iPhone helped push sales and profits to record highs.

Apples $124b revenue by segment as of Q4 2021:

  • iPhone: $71.6b, 58% contribution
  • Services $19.5b, 16% contribution
  • Wearables, home, and accessories: $14.7b, 12% contribution
  • Mac: $10.8b, 9% contribution
  • iPad $7.25b, 6% contribution

The company pays out one of the largest nominal dividends, and it recently announced a $90 billion boost to its share-buyback program. A high dividend payout, combined with fewer issued shares (meaning a higher dividend per share) is ideal for investors looking to invest in safe, dividend-yielding stocks. Apple also has massive cash reserves, further increasing the probability of consistent dividend payouts and share buybacks. 

  • Revenue: 
    • Average annual revenue growth since 2016 is 11.8% (33.2% in 2021) .
    • Revenue of $365.8 in 2021 compared to $215,6b in 2016, representing a 70% increase over 5 years for one of the biggest companies in the world. 
  • Gross profit: 
    • Steady at around 40% per year
  • Free cash flow: 
    • Apple has massive cash reserves, at around $93b in 2021
    • FCF average growth rate of 13% since 2016 
  • ROIC
    • Steady around 20% but jumped to 36% in 2021.
  • Dividends & payout
    • Dividend yield around 0.6% for the past three years, growing at roughly 10% per year.
    • Payout ratio in the mid 20% range for the last 10 years.
  • Debt: 
    • Apples debt is under control. They will probably opt to pay off some debt in the near future due to interest rates increasing.

We all know that Apple is a great company that delivers a great product. We are, however, still on the sidelines. We will monitor how the following variables play out over the next few weeks :

  • Famous BigShort investor, Michael Burry, is short Apple. What makes this interaction so compelling, is that the Oracle of Omaha, Warren Buffett, is overwhelmingly bullish on Apple. 
  • Apple iPhones cycles are increasing, meaning that people buy newer versions less often. 
  • The services segment is picking up speed. It now accounts for 16% of Apples revenue. This segment offers massive potential for future growth. 
     

***Disclaimer: Just a friendly reminder - This is not financial advice. Always do your own research before taking a position. Content is for informational and educational purposes only***


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