AbbVie Inc (ABBV) just went ex-div date today. Investors holding today are now entitled to the $1.30 dividend. However, I still had some cash laying around so I thought what better time to utilize some of it in this dividend grower.
This company “discovers develops, manufactures, and sells pharmaceuticals” around the world. Their biggest product is Humira. For a while the only product that was almost worth anything was Humira. Bears pointed this out again and again. That being said, they have made significant strides into new drugs - that have been showing incredible growth.
(Source)
Here is the skinny! Humira accounted for 39.90% of revenue in Q3 2020. Q3 2019 shows the revenue of Humira accounting for 58.21% of revenue. Now let’s go all the way back to 2015 - because I don’t feel like digging past that but does give us a good gauge of 5 years ago. In Q3 2015, Humira accounted for 61.35%. This should have just been called the Humira company.
(Source - ABBV 10-Q)
As we can see, significant strides were made in reducing the reliance on this one wonder drug. Even as this one drug grew revenue quite significantly this whole time as well. In that report showing 2015’s results alongside 2016’s results - Humira revenue worldwide accounted for $3.647 billion. This leaped to $5.140 billion in 2020 and represented a total growth of 4.1% in revenue from the prior year. These figures are just quarterly, not even what ABBV pulls in for the whole year. U.S. revenue grew in this case, while international dipped a bit. Those pesky patent cliffs all the analysts talk about - how’s a company supposed to make money if they have all this competition?
ABBV might not have the dividend history that AT&T does, and which we just did some put writing on earlier this week; however, that doesn’t tell the whole story at first glance. It doesn’t even look like it has been around nearly that long at all.
(Source - Seeking Alpha)
For dividend growth investors though, this history might not be sufficient. However, for those more familiar with the company in the first place - or a follower of Abbott Laboratories (ABT) - you will know that ABBV was a spin-off from ABT. This occurred in 2013 and ABBV has been on fire ever since with massive dividend increases. In fact, that $1.30 was the result of the latest dividend boost of a hefty 10%. The stock already paid a healthy dividend yield - the current yield is 4.63%
The Trade
I’m long the shares, so I’m due the dividend. However, I wanted to increase this a bit as I had some more cash lying around burning a hole in my pocket.
I went with a January 29th, 2021 $110 strike price. It was selling for $1.18 - netting investors $118 per contract. We are risking $10,882 - that is if one thinks ABBV can go down to $0 overnight. This contract expires in 15 days.
Hopefully, it will expire worthlessly, but I would also only write puts if I wanted to actually hold it as well. In this case, we could turn around and start writing covered calls at a $110 strike price. Sometimes we have to hold on for a bit for the numbers to work. With ABBV, it isn’t nearly as “steady” as some dividend stocks. They are in more of a growth phase still, so that can make it a bit erratic. This results in a higher risk here than T, no doubt.
(Source - Seeking Alpha)
With 15 days until expiration, anything can happen. However, if we were able to do this every 15 days and get the same return - this would work out to an annualized return of 26.04%. Not a bad deal! However, we would have to be extremely lucky to do the same again and again. It would also mean we weren’t getting put any of the shares - which is inevitable at some point.
One last note, this will expire before their next earnings date on February 3rd. So that is a risk we don’t have to worry about. Worthy of noting though, if we get put these shares and earnings are bad. Well, we could be sitting on this fat dividend payer for a while - such a bad problem to have? I think not.
Disclosure: Long ABBV
This is not investment advice but for entertainment purposes only. Any decision to buy or sell is solely made by that individual. Speak with a financial professional to develop an investing plan that is right for your own objectives and goals.