AbbVie (ABBV ) is a biotechnology company that develops and sells drugs for immunology, oncology, and virology.

It was spun off Abbott Laboratories in 2013 and has grown at an impressive pace since then. The stock is paying an attractive 4.0% dividend and is expected to distribute its next quarterly dividend in August. This makes AbbVie a candidate for investors looking for stocks that pay dividends in August.

AbbVie has a payout ratio of only 50% and hence it can continue to raise its dividend at an aggressive pace. In the last four years, it has raised it by 23% per year on average. It is very rare to find a stock that offers such a high dividend yield and such a high dividend growth rate.

Its flagship drug is Humira, which generates approximately 60% of its revenues. In Q1, AbbVie exceeded the analysts’ estimates by a wide margin thanks to the 11% adjusted revenue growth of Humira and the 38.5% revenue growth of Imbruvica, which resulted in 17.6% total revenue growth. The company grew its earnings per share by 46% and raised its guidance for the whole year from about $7.38 to $7.71.

Since its spin-off in 2013, AbbVie has grown its earnings per share at an enviable 19.7% average annual growth rate. Even better, it still has great momentum, without any signs of fatigue. It is also remarkable that it has maintained extremely high gross margins throughout the whole decade, around 75%.

The only risk factor is the fact that the patent protection of Humira has begun to expire. As this drug generates 60% of the total sales, this is an important risk factor. However, AbbVie is doing its best to produce the next-generation drug, which will gradually replace Humira in the treatment of rheumatoid arthritis. Upadacitinib has resulted in depressed disease activity in nearly half of the patients within 12 weeks. This has not been achieved by any drug so far. Thanks to its exceptional performance, the drug has advanced to phase 3 and is on track for regulatory submission later this year. Thus AbbVie has prepared the ground for a smooth transition after the expiration of the patent protection of Humira.

Valuation & expected returns

While AbbVie has grown its earnings per share at a 19.7% average annual rate in the last five years, it is reasonable to assume approximate 10% annual earnings-per-share growth going forward, just to be on the safe side. Moreover, the stock is currently trading at a price-to-earnings ratio of 12.2, which is lower than its historical average of 14.2. As the stock is likely to revert to its average valuation level within the next five years, it will enjoy a 3.1% annualized gain thanks to the expansion of its valuation level. Overall, AbbVie is likely to offer a 17.1% average annual return over the next five years thanks to 10% annual earnings-per-share growth, a 3.1% annualized expansion of its price-to-earnings ratio and its 4.0% dividend.

Final thoughts

AbbVie is a rare stock that offers a markedly high dividend yield and high dividend growth rate. Investors can hardly find a stock that offers these attributes, keeps growing at a relentless pace and is so cheaply valued. The reason behind the cheap valuation is the market’s concern over the fate of the company after the expiration of its flagship drug, Humira. However, the company has already prepared for this and is thus likely to enjoy a smooth transition from this drug to the next-generation drug. As soon as the market realizes this, it is likely to greatly reward the stock.