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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that AbbVie Inc. (NYSE:ABBV) is about to go ex-dividend in just four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase AbbVie's shares on or after the 12th of January will not receive the dividend, which will be paid on the 15th of February.
The company's next dividend payment will be US$1.55 per share, on the back of last year when the company paid a total of US$5.92 to shareholders. Calculating the last year's worth of payments shows that AbbVie has a trailing yield of 3.8% on the current share price of $162.14. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether AbbVie can afford its dividend, and if the dividend could grow.
View our latest analysis for AbbVie
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. AbbVie distributed an unsustainably high 162% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while AbbVie's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see AbbVie earnings per share are up 2.1% per annum over the last five years.