IBM, CVX, or ABBV: Which Dividend Aristocrat Stock is the Most Compelling Pick?

During these uncertain times, investors seek reliable dividend-paying companies that can generate stable income. Dividend aristocrats are companies that have increased their dividends for at least 25 consecutive years and are preferred by investors looking for passive income for their ability to build wealth over time. Using TipRanks’ Stock Comparison Tool, we placed IBM (NYSE:IBM), Chevron (NYSE:CVX), and AbbVie (NYSE:ABBV) against each other to pick the most attractive dividend aristocrat.

IBM (NYSE:IBM)

Earlier this year, tech giant IBM announced a less than 1% hike in its quarterly dividend to $1.66 per share, payable June 10, 2023, to stockholders of record as of May 10, 2023. This hike marks the 28^th consecutive year of dividend increase for the company. IBM has been paying quarterly dividends since 1916. With the latest hike, IBM’s forward dividend yield stands at 5%, which is well above the sector average of 1.03%.

IBM’s weak financial performance over the past five years has been a matter of concern for several investors. That said, the company is taking several measures to reduce costs and improve its profitability. Also, it is focusing on growth prospects in hybrid cloud and artificial intelligence (AI).

It expects to generate about $10.5 billion in free cash flow this year, reflecting an increase of more than $1 billion from last year.

Is IBM Stock a Good Buy?

Last month, BMO Capital analyst Keith Bachman and an analyst at Bernstein reiterated a Hold rating on IBM stock, with both analysts having a price target of $145.

Overall, Wall Street’s Moderate Buy consensus rating on IBM is based on four Buys and five Holds. The average price target of $146.56 implies 10.5% upside.   

Chevron (NYSE:CVX)

Integrated oil and gas giant Chevron made huge profits last year, thanks to high energy prices. The company generated free cash flow of $37.6 billion last year and distributed $11 billion in dividends. Earlier this year, the company raised its quarterly dividend by 6% to $1.51 per share. This made 2023 the 36^th consecutive year in which Chevron raised its dividends. Chevron offers a dividend yield of nearly 4%.

It is worth noting that Chevron has consistently raised its dividends despite the highly cyclical nature of the oil sector, thanks to its fortress balance sheet. In Q1 2023, the company’s shareholder distributions increased 65% year-over-year to about $6.6 billion (including dividends of $2.9 billion and share repurchases of $3.75 billion.)  

IS CVX Stock a Buy, Hold, or Sell?

Last week, RBC Capital analyst Biraj Borkhataria upgraded Chevron from a Hold to Buy and raised the price target from $165 to $180, saying that the PDC Energy acquisition re-rates the energy major’s free cash flow yield higher.

While the analyst expects the macro environment to remain volatile, he believes that “weaker end product demand and OPEC+ managing the oil market leaves CVX’s upstream heavy weighting well-placed.”

Further, Borkhataria thinks that Chevron has the ability to be defensive in difficult times due to its strong balance sheet and commitment to remain disciplined through organic and inorganic activity.

With 10 Buys and nine Holds, Chevron scores a Moderate Buy consensus rating. The average price target of $188.58 implies 21.3% upside.

AbbVie (NYSE:ABBV)

Pharmaceutical company AbbVie’s Q1 2023 performance, particularly the impact of biosimilars on blockbuster immunology drug Humira’s sales, has hurt investor sentiment about the stock. However, AbbVie is confident about the growth potential of newer immunology drugs Skyrizi and Rinvoq and the long-term potential of its overall pipeline.

This year, the company expects to generate an adjusted free cash flow of nearly $19 billion, net of $1.4 billion in Skyrizi royalty payments. AbbVie expects its solid cash flows to support its dividends and debt repayment of $4 billion in 2023.

AbbVie has increased its dividend for 51 consecutive years [including the years it was part of Abbott Laboratories (ABT)]. According to the company, which currently pays a quarterly dividend of $1.48 per share, it has increased its dividends by more than 270% since becoming an independent entity in 2013. The company offers an attractive dividend yield of 4.3%.   

What is the Price Target for ABBV Stock?

Last week, SVB analyst David Risinger reiterated a Hold rating on AbbVie following the news that Coherus Biosciences (CHRS) will begin selling its Humira biosimilar on July 1 at a list price that is 85% below Humira’s price.

Moreover, Mark Cuban Cost Plus Drug Company announced that it will offer the Humira biosimilar directly to consumers at 92% below Humira’s list price. The analyst assumes that Mark Cuban Cost Plus Drug Company is purchasing the product from Coherus at a slight discount to its price. Risinger awaits further biosimilar market developments to assess the situation, with several biosimilars expected to be launched in the second half of the year.

Wall Street’s Moderate Buy consensus rating on AbbVie stock is based on four Buys and six Holds. The average price target of $165.88 suggests 21.2% upside.

Conclusion

Wall Street is cautiously optimistic about all the three dividend aristocrats discussed here. Currently, they see higher upside potential in Chevron and AbbVie stocks than IBM. Taking into account total returns (estimated stock price appreciation and dividend yield), Chevron and AbbVie could offer comparable gains over the next 12 months.

Disclosure