Wednesday, January 11, 2017

Bought more Abbvie (ABBV) on dip today

I love the days when my favorite stock takes a dip as it creates a buying opportunity in a stock that I already own or is on my watch list.

Abbvie (stock ticker: ABBV) is one of such stocks. I already have a half position in Abbvie which I started back in November of last year, just before the elections. I briefly talked about it back then in this article: Are your investments election ready?

Today ABBV took a nice 3.5+% price dip. I was able to pick up some shares at $61.0 just around 2pm (EST). I would have done slightly better if I had bought it a bit earlier. Oh well it's hard to time the dip perfectly, but still I was able to pick up these shares deep in the dip and before the stock started to climb back out a bit.

Source: http://data.cnbc.com/quotes/abbv

I like to buy all my stocks in 25% increments of a full position. I already own half a position in ABBV and have been waiting patiently to add more on dips.

Despite the entire pharma/biotech sector under pressure due to pressure on drug prices by the new administration, the stock has still done quite well since elections. As of yesterday (prior to this dip), my capital return on existing ABBV position was around 10%. That's a pretty good return in two months. Even after today's dip, I am still up around 6%.

Today's 3.5% - 4% dip was quite nice as it gave me a yield-on-cost (YOC) of 4.2%. I am quite happy anytime I can pick some shares in a quality company (especially a dividend aristocrat) at 4+% yield.

With this latest purchase, I am now at 75% of my full position. I'll add the last 25% on any additional dips or after earnings report. Though, I may not see another dip as Abbvie is expected to report strong earnings and as a result stock should go up long-term.

Abbvie is also one of the fastest growing pharma companies and forecasted to grow at the annual rate of 14% and 17% in 2017 and 2018, respectively.

Forecast Calculators
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Company also recently announced a dividend increase of 12% for 2017. This is generous increase and representative of strong earnings and cash flow. Dividend is nicely covered on both earnings and FCF basis (payout ratio 49%) and I expect similar dividend growth to continue into the near future.

ABBV is currently trading at below fair valuation (FG P/E of 13) which makes it even more attractive to a value investor like myself.

I will be buying more of ABBV on any further weakness or dips to get to my full position while keeping my YOC above 4%.

Thanks for reading and hope you enjoyed the quick summary on my purchase today. As always, I am interested in hearing from my readers.

Disclaimer: I own shares of Abbvie.
Author of this article is not a licensed/registered financial or investment advisor and does not provide investment advice. Any mention of stock names in this article or website is not a recommendation to buy. This article is for informational purpose only. Full disclaimer can be read here: Full Disclaimer

4 comments:

  1. Thanks for your posts on VFC and ABBV.

    You invest based on data and analysis. I'm interested in your take on dividend vs growth stocks? You are clearly in the dividend camp these days, is it because you are out of capital growth phase and in capital preservation phase?

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  2. Actually, I've been in the dividend camp for the past 7 some years. I wanted to create a source of income that I could count on if something were to happen to my job.

    Having said that, growth is still important to me. However, it is a secondary goal and capital preservation has always been a priority but even more so now as I am retired.

    What I like about dividend growth investing is it doesn't exclude capital growth. Earnings have to grow for dividends to grow. You can find dividend stocks with double digit earnings/revenue growth rate.

    If I were a purely growth focused investor, I would still buy dividend stocks due to the extra layer of safety and stability such stocks have. I only wish someone had introduced me to this concept when I was in my 20s and I could have avoided losing money to high flying tech growth stocks.

    Dividend paying stocks are inherently less risky than pure growth stocks as they have to have a stable business model that is constantly generating cash. Also management is more focused on growing profits and generating cash which keeps them (for the most part) from adventuring into riskier areas.

    A common advice given to young people is to invest in pure growth stocks as the younger you are the more time you have to recover from a risky investment gone bad.

    I think it's an awful advice as the time and money lost is still a loss no matter how young you might be.

    A better advice would be to treat investment in pure growth stocks as driving a race car, you can't take your eyes of the road going 100 mph as there is less margin of error, so wear your helmet and understand the risks involved. Whereas investing in dividend growth stocks is like flying in a 747 jetliner, it's more forgiving, can weather any storm, can fly longer distances, and has a auto-pilot.

    You have inspired me to write a blog entry on dividend growth investing, so stayed tuned. Thanks!

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  3. I been picking up shares of ABBV also, great buy! My Limit triggered today at $60.78 Solid company with payout ratio below 50%

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  4. You did good. The stock was up today despite the initial dip and market being down. Maybe this is the bottom.

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