Is AbbVie the Most Underrated Dividend Growth Stock in the S&P 500?

When it comes to major dividend growth stocks, many come to mind, particularly widely held consumer staples stocks. However, because of their popularity, many have arguably become stretched in terms of valuation and potential upside.

In contrast, AbbVie (NYSE: ABBV), while one of the well-known dividend stocks among the S&P 500, has yet to become overvalued. It continues to offer investors a fantastic mix of value, growth, and yield.

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AbbVie at a glance

Based in North Chicago, Illinois, AbbVie went public in 2013, when Abbott Laboratories spun off its pharmaceutical business. Because of its connection to Abbott, AbbVie "inherited" Abbott's dividend history. Five years ago, Abbott reached Dividend King status, when it had its 50th consecutive year of annual dividend growth. Because of this, AbbVie is considered to be a Dividend King as well.

AbbVie's dividend growth history suggests it's maintaining its tradition as a reliable dividend stock. Since the spinoff 13 years ago, , AbbVie has increased its quarterly cash payout from $0.40 per share to $1.73 per share. This equates to nearly 12% in annualized dividend growth since going public.

Alongside its strong dividend-growth track record, the stock offers a relatively high yield given its share price. Currently, AbbVie has a forward dividend yield of around 3%. Valuation-wise, the stock trades for around 16 times forward earnings.

Compared to shares in other top pharma stocks, this may seem pricey. For instance, competitors like Bristol Myers Squibb and Pfizer trade for around 9 times forward earnings. However, these lower-priced competitors face greater uncertainty regarding near-term results. AbbVie, on the other hand, previously faced this uncertainty but no longer does, and is expected to continue earnings growth in the years ahead.

What makes it a dividend standout among healthcare stocks

A major reason why so many pharmaceutical stocks trade at a high-single-digit or low-teens forward multiple is the spate of upcoming patent expirations for scores of blockbuster branded drugs. Big names in the space are scrambling to replenish their pipelines, whether organically or via strategic acquisitions.

Previously, AbbVie was facing this issue, commonly known as a patent cliff. While it initially delayed the end of market exclusivity for its blockbuster drug Humira, biosimilars began flooding the market by 2023, eroding sales. However, thanks to the success of two drugs from the company's immunology portfolio, Skyrizi and Rinvoq, AbbVie continues to mitigate declining Humira sales.

After reporting adjusted earnings of around $10 per share in 2025, adjusted earnings are expected to hit $14.24 per share this year, and $16.23 per share in 2027. Contrast this with Pfizer, which analysts say will see earnings declines of 8% and 4% in 2026 and 2027, respectively. .

As burgeoning earnings bring AbbVie's payout ratio to 42% ,well-within sustainable levels, investors are likely to continue receiving dividend increases, which in recent years have averaged 5% to 6% . Rising payouts, coupled with steady earnings growth, point to a strong potential for solid returns over a multiyear time frame. With these attractive fundamentals, consider AbbVie a dividend growth standout among healthcare stocks.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, and Pfizer. The Motley Fool has a disclosure policy.