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1 Top Dividend Stock to Buy and Hold in 2022 and Beyond

By Prosper Junior Bakiny – Jan 13, 2022 at 10:30AM

Key Points

  • Some of Amgen's products are losing sales due to competition from biosimilars.
  • Two newly approved drugs will help compensate for the declining revenues.
  • Amgen offers a high dividend yield, a low payout ratio, and an attractive valuation.

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This year should be better than last year for healthcare giant Amgen.

Dividends can be a great source of passive income, and they can also help supercharge your portfolio's growth if you take advantage of automatic dividend reinvestment.

In other words, no matter your investment style, dividend-paying stocks can help you reach your goals -- and one that looks like a particularly excellent option right now is Amgen (AMGN -0.53%)

AMGN Chart

AMGN data by YCharts

Recent drug approvals will help boost top-line growth

At first glance, Amgen's business doesn't look particularly strong. In the third quarter, its total revenue came in at $6.7 billion, representing a meager 4% year-over-year increase.

One reason for that unimpressive growth is that some of its key products are now out of patent protection and facing off against biosimilars in the market. For instance, sales of Neulasta, which stimulates the production of infection-fighting white blood cells in cancer patients, decreased by 25% year over year in the third quarter to $415 million. So disappointing top-line growth in part explains why Amgen's stock has lagged the market lately.

Fortunately, some of the company's drugs are performing much better than Neulasta. For example, sales of osteoporosis treatment Prolia jumped 15% year over year to $803 million in the third quarter. Sales of Repatha, which lowers bad cholesterol, grew by 33% to $272 million. And sales of psoriasis and psoriatic arthritis drug Otezla increased by a respectable 13% to $609 million. 

Physician sitting with patient.

Image source: Getty Images.

In addition to these products, some newly approved drugs should help Amgen's revenue growth rates. In May, the company received the regulatory nod from the U.S. Food and Drug Administration (FDA) for Lumakras, a treatment for advanced or metastatic non-small-cell lung cancer (NSCLC). While there are scores of approved drugs that treat NSCLC, Lumakras became the first of the bunch that specifically targets a mutation found in 13% of patients with non-squamous NSCLC.

This could be a big opportunity for Amgen. In 2019, lung cancer was the leading cause of cancer deaths in the U.S. -- with 139,603 total victims -- accounting for 23% of all deaths attributed to the disease that year. And 84% of lung cancers are of the NSCLC variety. So while 13% of a patient population may not sound like a lot, in this case it is. The European Union's health regulator also just approved Lumakras, opening up another major market for the medicine. This drug only recorded $36 million in sales in the third quarter. Investors should expect its revenues to rise rapidly.

Another new drug that will meaningfully contribute to Amgen's financial results is Tezspire, a treatment for severe asthma that it developed with AstraZeneca. In December, the FDA gave the green light to Tezspire, and management expects it will become a "significant growth driver" given that current therapy options for asthma produce subpar results for millions of patients.

In addition, Amgen currently has more than 20 ongoing phase 3 clinical trials. So the odds favor some new drug approvals or label expansions in the next couple of years (and beyond), further bolstering the company's lineup and helping it recover from its recent financial weakness.

A great dividend at a reasonable valuation

All of this should also help give the stock a boost. At the current share price, Amgen's dividend yields an above-average 3.1%, and its reasonable cash payout ratio of 50.45% gives management ample room for future payout hikes. Amgen has increased its payouts by 68.7% over the past five years.

Trading at a forward price-to-earnings ratio of 12.8 -- compared to an industry average of 11.2 -- Amgen looks reasonably valued today. Investors looking for top dividend stocks at great prices need look no further than this excellent biotech stock.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.

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