The forward yield is not the only criterion for selecting profitable dividend stocks. While some stocks pay a high and growing dividend, others may cut dividends, resulting in a reduction in income. AbbVie is an attractive pharmaceutical stock that is likely to grow due to its strong drug development pipeline with over 240 ongoing clinical trials and 25 regulatory approvals since its inception in 2013. AbbVie’s forward dividend yield of 3.7% is higher than the market’s average forward yield of 1.6%. Over the last five years, its dividend per share grew at an average annual rate of 17.6%, although the pace has slowed, and the dividend increased by only 8.4% for 2023. However, AbbVie has room to increase its dividend payout as its payout ratio is close to 85% of its 2022 annual earnings of $11.8 billion. Although AbbVie’s top-earning medicine, Humira, is expected to face generic competition, management anticipates an annual earnings growth rate of around 8% by the end of the decade.
On the other hand, Walgreens Boots Alliance is an example of a company that may not be a good investment due to its weak financials. In the past five years, its quarterly revenue remained flat, while its quarterly earnings declined by 47.6% to $703 million in Q2 of 2023, and its quarterly free cash flow shrank by 87% to $248 million. The company is trying to enter the primary care, specialty care, and post-acute care markets to boost growth, but its core U.S. retail pharmacies are not posting year-over-year growth and are becoming less profitable. To make matters worse, demand for its services like coronavirus vaccination is declining. Walgreens’ dividend payout has grown by only 20% since 2018, and there is a possibility that there may not be further hikes, or the company may even cut the dividend in the future.
