We Just Put $1,000 Into This Stock For The Income Builder Portfolio

Every time my wife has accessed her 401(k) plan the last month or so, she has been greeted with this message at the top of the website:

Although I am not all that big on rebalancing or on hiring financial advisers, I do understand why some folks might feel differently. Otherwise, I agree with everything in that statement, and this line really strikes home:

Attempts to time the market are rarely successful.

That’s why I regularly buy stocks in good times and bad — whether for my personal account or for the Income Builder Portfolio I am putting together for Daily Trade Alert.

Every month, the folks at DTA allocate $2,000 for me to make two buys on their behalf.

I executed our first-ever acquisition — of biopharmaceutical giant Amgen (AMGN) — back in mid-January when the market was humming right along.

And on Tuesday, Dec. 18, with things much less peachy on Wall Street, I made our last buy of 2018: a dozen shares of yet another major biopharm, AbbVie (ABBV).

Honestly, it was just a coincidence that the year’s first and last purchases were of companies from the same industry … although now that I think about, it I do kind of like the symmetry.

All told, Year 1 featured 24 buys. Because three stocks were purchased twice each, the Income Builder Portfolio has 21 companies.

There are still a handful of trading sessions left in 2018, so I will wait a couple of weeks to write an article that fully assesses the IBP’s maiden year.

In the meantime, let’s talk a little more about the portfolio’s latest addition.

ABBVery Good Dividend

There were a number of reasons I selected AbbVie, and I detailed many of them in my previous article. Very high on the list: an attractive, rapidly growing dividend.

The graph below shows how aggressively the company has increased its payout to shareholders — especially over the last year and a half, when the dividend has grown 67% from .64/quarter to $1.07.

(Graphic from Fidelity.com)

Because our purchase was made before AbbVie’s next ex-dividend date (Jan. 14), the IBP will receive $12.84 on Feb. 15.

That will be reinvested right back into ABBV stock, as per the IBP Business Plan, adding about .153 of a share (if the stock price is still around $84 in mid-February).

Then, three months later, the new share total of 12.153 would generate a $13.00 dividend, which in turn will buy more ABBV shares. On and on the position will grow over the ensuing months and years.

AbbVie sports a robust 5% yield, well above its 5-year average of about 3.5%, and it instantly becomes one of the IBP’s top income producers. And with a payout ratio of about 50%, there is plenty of room for the dividend to grow.

The following graphic from McLean Capital Management indicates that ABBV produces more than enough free cash flow to easily cover the payout.

Analyze This!

A consensus of analysts surveyed by Thomson Reuters shows significant bullishness toward AbbVie.

Ford Equity Research’s analysts expect ABBV to do better than the overall market in 2019.

Valuation Station

Citing ABBV’s attractive P/E ratio and ultra-low 0.7 PEG ratio, Morningstar considers the stock to be a 4-star buy with a $102 fair value.

Value Line assigns ABBV a “Relative P/E” ratio of well below 1.00, which is the average of its 1,700-stock coverage universe. The site’s analysts also believe AbbVie’s price could more than double in the next 3-5 years (blue circled area).

CFRA’s analysts, meanwhile, believe ABBV is just about fairly valued.

Using a metric called “blended P/E ratio,” FAST Graphs says ABBV is trading at a steep discount to its Normal P/E ratio of 15.2.

Indeed, with a 10.8 blended P/E ratio, ABBV is at one of its lowest valuations since the company was spun off from Abbott Laboratories (ABT).

Wrapping Things Up

Nobody rings a bell or sounds an alarm when the market has reached a bottom or a top, so I don’t pretend to know when those magical moments will be.

I simply make regular purchases of quality companies, preferably at attractive valuation levels. And I plan to hold them for years, all the better to reap the organic growth that is what Dividend Growth Investing is all about.

Because AbbVie is a biopharm, its price can be volatile. The current status of the overall market makes that seem to be the case even more.

However, ABBV carries a solid A- credit rating from Standard & Poor’s, and the following Jefferson Research graphic illustrates the quality of the company’s financials.

I feel good about all 21 of the Income Builder Portfolio’s holdings, and AbbVie is a very welcome addition.

See y’all in early January with an in-depth review of the IBP’s first year.

— Mike Nadel

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