In July, I started a position in AbbVie (ABBV), the pharmaceutical giant, using some of the money that I got when I sold out of AT&T.
AbbVie wasn’t high on my list to build further at this time, but as sometimes happens in the market, its price dropped suddenly when the FDA announced that a warning label would need to be put on one of its important drugs, RINVOQ.
AbbVie’s price fell about 14% in the couple weeks after the news. In long-term dividend-growth investing, that’s what’s known as a buying opportunity.
In my Dividend Growth Portfolio (DGP), I reinvest dividends in the middle of each month. Between reinvestments, I let dividends accumulate in cash to fund my next monthly purchase. The amount varies each month, but it is usually in the $400-500 range.
I just happened to be considering candidates for this month’s reinvestment when I saw the news about AbbVie.
AbbVie has become a favorite among dividend-growth investors over the past few years. The company is the branded-drug portion of Abbott Labs (ABT), which spun it out as a separate company in 2013.
Here is AbbVie’s Quality Snapshot. Its total score of 17 points (out of a maximum 25) means that it is a good-quality stock that is “investment-grade.”
The next table includes not only the Quality Snapshot shown above, but also other metrics that are important to me. Notice the outstanding dividend stats in the first two columns.
While AbbVie’s 8-year record of increasing its dividend is short, the company has increased its dividend every year since it was formed. In my mind, it continues in the tradition of its parent Abbott Labs, which would add 40+ years to the streak.
Here’s the summary of the purchase. It was financed by dividends I have been collecting over the past month.
My cost per share for this purchase ($106.76) is actually about $9 less per share than I paid a few months ago, thanks to the market’s reaction to the FDA’s labelling announcement. I think it’s about 14% undervalued.
Impact on My Portfolio
Here is how the total AbbVie position will appear in my portfolio table when I update it at the end of the month. New information is highlighted in yellow.
Focusing on the portfolio’s income, here’s the impact of adding the four additional shares of AbbVie:
The annual income run-rate goes up $21, and that is enough to bump my yield on cost (YOC) to 11.0%.
For those of you who remember, my annual income run-rate was $5211 (YOC 11.1%) before I sold AT&T in July; after I replaced it, the run-rate fell to $5007 (YOC 10.7%).
Since then, with dividend increases from several companies, three months of reinvestments, and a bump from trimming Microsoft last month, my run-rate has climbed back to within $77 of what it was before I sold AT&T. I project that it will regain and then surpass the former run-rate around the end of the year (if not sooner).
This purchase of AbbVie comes in plenty of time for the new shares to qualify for its next dividend. The ex-dividend date is in October and the payment is scheduled for November 15.
These monthly dividend reinvestments illustrate how compounding works: By using dividends already collected to add new shares that will generate their own dividends, I’m making money on money already earned. That is the basic definition of compounding.
The monthly reinvestments are also examples of opportunistically investing in excellent companies at attractive prices. It is always fun to find a high-quality company that fits my investing goals when it is on sale. This month’s pick-up of AbbVie is particularly illustrative of opportunism, as the sudden drop in AbbVie’s price made it pop out of the collection of stocks that I was thinking about. The sale price on AbbVie fell into my lap at just the right time.
Here is my reinvestment program so far this year. You can see how I’ve spread my dividends around to both start new positions and build up existing ones.
After buying the four AbbVie shares this month, I have $72 in cash left over. That begins the accumulation of money to pay for October’s reinvestment.
— Dave Van KnappWe’re Putting $2,000 / Month into These Stocks
The goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.