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Is AbbVie a Millionaire Maker?

Motley Fool - Sun Apr 14, 12:23AM CDT

Big pharma stocks like AbbVie (NYSE: ABBV) usually aren't high on the list that investors look to for opportunities that could make them into millionaires. After all, they aren't typically in the news for good reasons, and despite relying on the lifesaving medicines that they produce, most people aren't talking to their coworkers about how their products are going to be in every household or core enablers for some grand global trend.

But as keen investors know, sometimes the best opportunities are lying ignored in plain sight. So let's take a minute to evaluate whether a timely investment in AbbVie could make you millions and under what conditions.

Holding AbbVie will probably make you a bit wealthier

AbbVie's value proposition to investors is that it's a differentiated and top-performing pharmaceutical company that has a knack for engaging in the right research and development (R&D) work to compete in lucrative drug markets and win. And when AbbVie wins, it can win big, which could drive major returns for shareholders over time. Take its medicine called Humira, for instance.

Humira treats a variety of different conditions ranging from psoriasis to arthritis, ulcerative colitis, Crohn's disease, and others. While it's now offered as a generic in many jurisdictions, for 2023 it still brought in a whopping $14.4 billion in sales. That makes it a significant proportion of the company's 2023 top line of $54.3 billion.

As Humira is seeing its market share rapidly devoured by generic copies, new sources of revenue are already coming online to replace it. In particular, a pair of medicines called Rinvoq and Skyrizi that treat many of the same conditions are anticipated by management to bring in more than $27 billion annually by 2027. To accomplish that, the pharma will keep doing one thing that it was especially good at with Humira: conducting follow-on clinical trials to expand the approved indications of its already-successful medicines.

Between this year and next year, management is expecting that both Skyrizi and Rinvoq will pick up an additional indication each. In the same period, it'll also collect the results from three ongoing, phase 3 clinical trials for Rinvoq, which could set it up for another three approved indications in the following years. So the work to continue expanding the revenue from both products is well underway, and the results are good so far.

And that's before even taking the rest of AbbVie's pipeline output into account. Through 2025, aside from Rinvoq and Skyrizi, the company could pick up another eight approvals. So it has plenty of opportunities to grow in the near term. Now, let's move on to the tangible financial opportunities that it offers to investors.

AbbVie's forward-dividend yield is presently 3.4%, which isn't bad. More importantly, over the last 10 years, it hiked its dividend by 269%. If you count the years before it spun off from Abbott Laboratories, it's a Dividend King, which means that its payout rose annually for at least 50 consecutive years. Therefore, the stock can reasonably be expected to provide larger and larger cash flows over time to investors who are willing to be patient.

At the same time, management has a history of rewarding shareholders by repurchasing shares in addition to paying out dividends. In 2023, the company bought back nearly $2 billion worth of its stock -- peanuts in comparison to the $12 billion it spent in 2018.

As the business starts to pick up steam and throw off more cash once again, repurchases of similar scale may see an encore. And getting capital back certainly helps to make investors richer than before they bought the stock.

This stock isn't a lottery ticket

As you may have guessed from the size of its base of revenue and its dividend, AbbVie isn't exactly a business that's going to multiply in value within the next couple of years. If you were looking for an investment that'd be the only ticket you would need to buy to go from rags to riches, this isn't it, and in fact, such an investment may not exist.

On the other hand, there's more than one way that holding shares of AbbVie could be a smart move for your financial health.

As a big pharma stock, the downside risk of an investment is fairly limited, as it's going to be selling its critical medicines and developing new ones more or less no matter what. Its shares will probably grow in value over time, and you'll get a cut of its cash flow directly from the dividend. And if the stock is able to continue its strong performance, you might even outperform the market.

So, is AbbVie a millionaire-maker? Not on its own, no.

But making it a part of your portfolio is still a smart move if you're willing to become a millionaire slowly, with prudent investments and good stewardship of your finances.

Should you invest $1,000 in AbbVie right now?

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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