Earning returns on par with the Nasdaq Composite is simple enough: Just invest in exchange-traded funds (ETFs) that track the index. But what if you want to do even better than the Nasdaq? Building a portfolio that can outpace it isn't easy. If I were to give it a shot, though, I'd seriously consider including AbbVie(NYSE: ABBV). This drugmaker might have what it takes to beat the Nasdaq, partly thanks to its robust dividend program.
The incredible power of dividends
AbbVie is among an elite group of companies known as Dividend Kings, which have raised their payouts for more than 50 years. The pharmaceutical leader's streak is currently at 52 when including the time it spent under the wing of its former parent company, Abbott Laboratories. And since it split from Abbott in 2013, AbbVie has raised its payout by 288%. The ability to maintain a solid dividend program for years is an incredibly attractive quality to long-term investors.
First, it says a lot about the company's underlying business. There will always be unforeseen risks and setbacks, economic issues, geopolitical troubles, pandemics, and so on. Any corporation that can continue hiking its dividend despite all that, as AbbVie has done, likely has at least some of the qualities of a forever stock. Second, while it's hard for dividends to replace a person's entire salary -- you'd need millions invested for that -- reinvesting the dividend can work wonders on long-term returns.
Time plus dividend plus compounding is a potent combination. Let's illustrate: Since 2013, AbbVie's stock price has lagged the pace of the Nasdaq Composite.
But let's see what happens when we look at the total returns they have provided -- total returns include dividends reinvested. In this case, AbbVie is ahead by a substantial margin.
ABBV Total Return Level data by YCharts.
The lesson: AbbVie's business is strong. The company's dividend program makes the stock that much more attractive and capable of delivering superior returns, even when compared to the Nasdaq.
Slow and steady wins the race
Some might argue that AbbVie can't repeat its above-average performance. The Nasdaq is home to tech leaders, including some profiting from the artificial intelligence (AI) revolution. These leaders weigh heavily on the Nasdaq, literally. They account for much of the index's performance. Their solid prospects will pull the Nasdaq to impressive heights. Furthermore, AbbVie has now lost its biggest moneymaker, immunology medicine Humira. How can it compete with the powerful Nasdaq led by the Magnificent Seven from here on out?
These are all fair points. AI indeed looks revolutionary. It's less obvious that every tech company benefiting from it, especially those at the forefront, is as unstoppable as it seems. Will the Nvidia bubble finally burst? How will Alphabet and Apple perform amid regulators pursuing antitrust actions against them? Tesla has been an up-and-down performer as the company's financial results and events have sometimes impressed, sometimes not so much. Where will the stock go next?
These may be excellent companies, but they have their challenges, too. AbbVie does have an advantage over them. The corporation's business might not be exciting, but it is reliable and straightforward. AbbVie sells medicines for various conditions, some more serious than others. For the most part, patients won't stop taking therapies in difficult economic times. They are, however, much less likely to buy the latest Tesla model or iPhone in a recession.
And although AbbVie can no longer count on Humira, the company replaced its former crown jewel with a pair of immunology therapies, Skyrizi and Rinvoq. This duo will be even better than Humira was. Their combined sales will exceed $27 billion by 2027. Humira's peaked at $22.1 billion. Management has said that Skyrizi and Rinvoq sales will continue growing well into the 2030s, so don't expect a patent cliff anytime soon.
That's to say nothing of AbbVie's entire lineup and vast pipeline that should see the company delivering many more brand-new medicines regularly. That also tells us the company is capable of maintaining its dividend streak for many more years to come. With that secret weapon at its disposal, the company can still beat the Nasdaq in the long run.
Should you invest $1,000 in AbbVie right now?
Before you buy stock in AbbVie, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AbbVie wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $880,670!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 21, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, Alphabet, Apple, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
