AbbVie vs. Merck: Which Dividend is Better for Retirees

AbbVie and Merck are two pharmaceutical giants offering attractive dividend yields for retirees, but which one is the better choice? AbbVie currently yields 2.7%, while Merck offers a slightly lower 2.3%. Both companies raised their dividends by about 5% last year, demonstrating their commitment to shareholder returns.

Merck's dividend appears to have more financial cushion, using 52% of its free cash flow over the last twelve months compared to AbbVie's 66%. However, AbbVie's key drugs, Skyrizi and Rinvoq, are growing at over 20% with U.S. patents extending to 2033, providing a solid growth outlook. In contrast, Merck's blockbuster drug Keytruda, which accounts for about half of its sales, faces biosimilar competition starting in December 2028.

Both companies have taken on significant debt recently. AbbVie closed a $10.9 billion acquisition of Apogee Therapeutics and issued $18 billion in notes this year. Merck has also been active in the acquisition market, spending about $26.4 billion on deals. Despite these financial maneuvers, AbbVie's dividend has been well-covered by free cash flow, even as the gap between free cash flow and dividends has narrowed.

For retirees seeking stable income, the choice comes down to which company has already navigated its biggest patent cliff. AbbVie has successfully transitioned past the Humira patent loss, while Merck is still preparing for the Keytruda patent expiration. While Merck's dividend is better covered, AbbVie's higher yield and stronger growth prospects make it the preferred option for income-focused investors.