1 Top Dividend Stock to Buy and Hold Forever

Key Points

• AbbVie's financial results tend to remain stable even through challenging economic periods.

• The company has demonstrated its ability to navigate headwinds.

• AbbVie has an impressive track record of consecutive dividend increases.

• 10 stocks we like better than AbbVie ›

Strong dividend payers can be a stabilizing force in a well-diversified portfolio. That's because corporations that can consistently pay and raise their payouts over a long period are often relatively low-risk, well-established companies with robust underlying operations.

Often, but not always. Some will stop dividend hikes or even suspend their programs altogether when trouble arises.

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So, dividend seekers must carefully select which stocks to add to their portfolios if they wish to maintain steadily rising passive income over a long period. And AbbVie (NYSE: ABBV), a leading healthcare company, appears to be a great option. Let's discuss why that is.

A steady, reliable business

AbbVie is a pharmaceutical leader that develops and markets novel medicines. This industry is about as defensive as they come: People need drugs, no matter how well -- or how poorly -- the economy is doing. Even during the worst recessions, physicians continue to prescribe them, and patients continue to purchase them. AbbVie's own portfolio encompasses products in several therapeutic areas, including immunology, oncology, neuroscience, eye care, and more.

Considering many of its therapies treat serious, chronic, or even life-threatening conditions, which sometimes require long-term prescriptions, AbbVie generates consistent revenue and profits, which helps support its dividend program.

Image source: Getty Images.

AbbVie can overcome challenges

Despite its steady business, AbbVie does encounter headwinds. Like all drugmakers, AbbVie has to deal with the occasional patent cliff, as well as clinical or regulatory setbacks. The way the company has responded to that in the past can tell us a lot about the strength of its underlying business.

In 2023, AbbVie lost U.S. patent exclusivity for Humira, an immunology medicine that was its biggest growth driver and best-selling product.Although revenue and earnings initially declined, the company has since rebounded and is moving in the right direction again.

Importantly, AbbVie did not cut its payouts while it dealt with that. Overcoming a major patent cliff takes both planning and execution. AbbVie planned ahead: It developed products internally, such as Rinvoq, an immunosuppressant, and licensed some from other drugmakers, including Rova-T, a cancer medicine and Skyrizi, another immunology product. It also made a major acquisition, buying out Allergan for $63 billion in 2020.

How did these moves pan out? Rova-T turned out to be a flop -- the medicine never saw the light of day. However, Skyrizi and Rinvoq are now AbbVie's biggest growth drivers. The Allergan acquisition helped the company diversify its lineup and pipeline, providing growth drivers such as Vraylar, an antipsychotic medicine, and its Botox franchise.

Skyrizi and Rinvoq should continue increasing their sales well into the next decade, but what will AbbVie do after that?

If history is any indication, the company will implement a similar strategy to the one that helped it move beyond Humira. The drugmaker is already at it. Recent licensing deals and acquisitions have improved its pipeline.

AbbVie is entering the weight loss market through an agreement with Denmark-based Gubra A/S for GUB014295, an investigational weight management therapy. The transaction cost AbbVie an up-front payment of $350 million, with the potential for an additional $1.9 billion in clinical milestones and future royalties on sales.

Elsewhere, AbbVie recently acquired Capstan Therapeutics, a company developing medicines for autoimmune diseases, for approximately $2.1 billion in cash. In addition, AbbVie has a deep pipeline of its own, with dozens of ongoing programs that should eventually yield brand-new approvals or label expansions.

The dividend is safe

AbbVie has an impressive dividend track record, considering the time it spent under the wing of Abbott Laboratories, its former parent company. Factoring that in, AbbVie is a Dividend King (a company that has raised its payouts for at least 50 consecutive years), as AbbVie's current streak stands at 53 years.

Even beyond the legacy from Abbott, the drugmaker has significantly hiked its dividends since it became a stand-alone, publicly traded company in 2013. Further, AbbVie's forward yield of 3% is pretty high -- the average for the S&P 500 (SNPINDEX: ^GSPC) is a meager 1.3%.

Lastly, the company's cash payout ratio remains reasonable at 61.8%. AbbVie's excellent dividend program, robust underlying operations, and ability to develop new medicines continually and overcome patent cliffs make it a top dividend pick for the long term.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie and Abbott Laboratories. The Motley Fool has a disclosure policy.