An insistence upon investing in only the highest-quality businesses is paramount to long-term success as an investor. And when investing in the pharmaceutical industry, it's important to only pick stocks with robust existing drug portfolios and pipelines of drug candidates. This helps to secure growth in both the near term and long term.
Pharma stock Amgen (AMGN -0.19%) appears to fit these requirements. Let's dig deeper into four reasons why this stock is one that income investors can buy and hold forever.
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1. Amgen frequently outperforms analysts' expectations
Amgen recorded $6.85 billion in revenue in the fourth quarter, which represents a 3.2% growth rate over the year-ago period. This came in slightly below analysts' forecast of $6.87 billion. Regardless, Amgen has beaten analysts' revenue consensus in eight out of the last 10 quarters.
While the company's product sales declined 1% year over year in the fourth quarter, its partnership with Eli Lilly to manufacture COVID-19 antibodies helped revenue edge higher.
Amgen has been able to top analysts' predictions more often than not thanks to its portfolio of 27 drugs, which includes 10 blockbusters. Double-digit volume growth in osteoporosis drugs Prolia and Evenity, cholesterol drug Repatha, and cancer biosimilar drug Mvasi offset volume declines in immunology drugs Enbrel and Neulasta, the latter of which is given to patients after they receive chemotherapy.
Amgen's non-GAAP (adjusted) diluted earnings per share (EPS) surged 26% higher year over year to $4.36 in the fourth quarter. This comfortably surpassed analysts' average estimate of $4.14 for the quarter -- and was the ninth earnings beat out of the past 10 quarters.
Amgen's earnings surprise was the result of two factors. The first was a 550 basis point year-over-year increase in its non-GAAP net margin to 35.9% in the fourth quarter, which was due to lower expenses. Secondly, a 3.4% year-over-year reduction in the company's average outstanding diluted share count to 565 million made every shareholder's slice of the profit pie larger.
2. A promising pipeline should lead to a solid future
Amgen had a respectable fourth quarter. But what's even better is that analysts are anticipating Amgen will generate 7% annual non-GAAP diluted EPS growth over the next five years. Why are analysts optimistic toward the stock's future? Amgen has more than three-dozen compounds at different stages of clinical trials.
Tezspire (tezepelumab), a drug co-developed with AstraZeneca, has loads of potential. It was recently approved by the U.S. Food and Drug Administration (FDA) to treat patients with severe asthma, and could rake in $1 billion in annual sales for Amgen after its revenue split with AstraZeneca. And with additional indications for chronic rhinosinusitis with nasal polyps and chronic obstructive pulmonary disease in phase 2/3 clinical trials, even higher peak sales could be in the works for Tezspire.
Amgen's cancer therapy (known as Lumakras in the U.S.), which targets the KRAS G12C mutation in advanced lung cancer patients, is well on its way to blockbuster status after major regulatory approvals in recent months. And with potential indications in advanced colorectal cancer and advanced solid tumors in phase 2/3 clinical trials, the drug could become a blockbuster several times over.
Finally, Amgen has biosimilars in phase 3 clinical trials for megablockbusters like Johnson & Johnson's immunology drug Stelara, Sanofi and Regeneron's eczema and asthma drug Dupixent, and AstraZeneca's rare disease drug Soliris.
3. Strong dividend growth looks set to endure
Amgen's 10.2% hike in its quarterly dividend announced last December was a sign of confidence from the company. And why wouldn't Amgen's management team be optimistic?
Its dividend payout ratio was 41.2% in 2021. This leaves the company with plenty of retained earnings to continue its share buyback program, debt repayment, and bolt-on acquisitions to further boost its growth prospects.
That's why I believe Amgen's dividend growth rate will remain in the high-single-digit to low-double-digit range for the foreseeable future. Considering the stock's 3.4% dividend yield, this is an enticing mix of immediate income and growth potential.
4. The stock is reasonably valued
Best of all, Amgen's stock still seems fairly priced for income investors to buy at this time. For context, Amgen's price-to-sales ratio of 5.1 is slightly below its 13-year median of 5.3. This is despite the fact that the company's drug portfolio and pipeline is arguably the best it has even been.
