Earnings can be manipulated somewhat, but dividends are real. Companies that can afford to pay a dividend and increase it on an annual basis typically have sustainable business models, efficient operations, and effective, shareholder-friendly management.
Some companies are willing to go the extra mile by implementing enormous dividend increases. Huge dividend boosts can be a powerful buy signal, representing confidence from management that the company's future is bright. These buy signals can lead to big capital gains and significant income.
Two companies with compelling buy signals
Amgen (AMGN -0.59%) is one of the world's largest and most successful biotechnology companies. Amgen has six blockbusters, including Neulasta and Neupogen, which boost white-blood-cell production, and arthritis drug Enbrel. These products combined for $10 billion in sales in 2013 and are the backbone of Amgen.
As a result of Amgen's blockbusters, its financial results have been excellent. Since 2000, its annual revenue has climbed from $3.2 billion to $18.7 billion, and its net income has risen from $1.1 billion to $5.1 billion.
Amgen's financial success has allowed it to be one of the few biotech companies to reward its shareholders with a dividend. In fact, Amgen recently increased its dividend by 30%, which boosted its yield to 2.1%.
I believe this huge dividend boost is a buy signal demonstrating management's confidence that it will develop many more blockbusters in the future. This confidence is backed up by decades of experience in developing life-changing medications such as Xgeva and Prolia, which treat bone metastases. Xvega and Prolia were launched in 2010 and already have a combined $1.8 billion in annual sales.
Further, Amgen's rock-solid pipeline consists of eight high-potential drug candidates in phase 3 trials, in addition to dozens in earlier phases. An approval is expected later this year for Evolocumab, which will combat cardiovascular disease. Its pipeline includes a large number of drug candidates to treat cancer, including Rilotumumab for the treatment of gastric cancer and Trebananib for the treatment of ovarian cancer.
Amgen is currently trading at an attractive price. Its P/E of 17 is much lower than that of its biotech peers, which trade at 40 times earnings on average.
Based on its extremely successful group of existing products, high-potential pipeline, nice dividend, and attractive price, I believe investors should take a close look at Amgen.
Boeing (BA -0.20%) is a global aerospace company that manufactures and sells commercial jetliners, private airplanes, and systems for the defense, aerospace, and security industries. Its most recent jetliner, the 777X, is expected to be the largest and most energy-efficient jet in history. The 777X will be an excellent follow-up to the Boeing 787 Dreamliner.
Boeing has an impressive dividend history that consists of 70 consecutive years of payouts. The company recently implemented a whopping 50% dividend increase, which boosted its dividend yield to 2.2%.
I believe this massive dividend increase was a buy signal conveying management's confidence that its impressive jetliner models will continue to provide record sales for the company. Based on its record backlog of $441 billion, this confidence is easily justified.
Going forward, Boeing is poised to benefit tremendously from the growth of air travel, which is projected to double within the U.S. over the next 20 years. Furthermore, air travel growth in developing markets should be even greater due to the need for infrastructure upgrades within these markets.
Given Boeing's positive earnings trend, long-term industry tailwinds, nice dividend, and tremendous backlog, I believe investors should take a close look at this stock.
The Foolish bottom line
In my opinion, the management of Amgen and Boeing would not implement these huge dividend increases without being quite confident in the future of their company. I believe these buy signals are a precursor to market beating returns over the long haul.
