Due to economic concerns, financial markets have fared poorly in 2022. In fact, the S&P 500 index has sunk 17% so far this year.
The good news is that many established dividend-paying stocks have done much better than the broader markets. Up 8% year-to-date, Amgen (AMGN -1.44%) is one such stock that has performed well during this time.
But is the dividend stock a buy after its convincing outperformance through the first eight months of the year? Let's dig into Amgen's fundamentals and valuation to address this question.
Steady revenue and earnings growth
The California-based company boasts a $134 billion market capitalization, which makes it the tenth-largest drugmaker on the planet. Unsurprisingly, Amgen is a very diversified pharmaceutical company with blockbuster oncology, bone health, and immunology drugs.
| Total Revenue | ||
|---|---|---|
| Q2 2021 | Q2 2022 | Growth rate |
| $6.52 billion | $6.59 billion | 1% |
Chart by author. The company's second quarter is the three-month period ending June 30.
When Amgen released its financial results for the second quarter last month, its revenue edged higher. Lower other revenue from its manufacturing collaboration with Eli Lilly for COVID-19 antibodies was more than offset by increased product revenue.
The ebbs and flows of the COVID-19 pandemic resulted in less demand for COVID-19 antibodies in the second quarter. This was due to fewer cases than in the year-ago period, which explains the 24% dip in other revenue to $313 million during the quarter.
Amgen's product revenue inched 2.7% higher to $6.3 billion in the second quarter. Revenue declines from the immunology drug Enbrel and the radiation sickness treatment Neulasta were more than offset by the rest of the company's product portfolio: namely, 13.3% growth in the osteoporosis drug Prolia to $922 million in revenue and 11.2% growth in immunology drug Otezla to $593 million.
Recent product launches such as asthma drug Tezspire and cancer drug Lumakras and gains in more established products like Prolia and Otezla, noted above, led Amgen's product volume to surge 10% higher over the year-ago period. Despite the hefty surge, lower net selling prices from older drugs and unfavorable foreign currency translations dampened the overall sales growth.
Amgen produced $4.65 in non-GAAP (adjusted) diluted earnings per share (EPS) during the second quarter, which was more than double the year-ago period.
The company's $1.5 billion write-off of its acquisition of Five Prime Therapeutics in the year-ago period resulted in a significant year-over-year decrease in operating expenses. In addition to a 5.9% reduction in its outstanding share count to 544 million, this explains how Amgen's adjusted diluted EPS spiked higher in the second quarter.
Promising new product launches and a solid pipeline
Looking ahead, the future should be bright for Amgen. Even though products like Neulasta and Enbrel will continue to face declining sales moving forward, the company has more than enough new drugs and projects in its pipeline to compensate.
Accounting for its revenue split with its partner AstraZeneca, asthma drug Tezspire (tezepelumab) could generate $1 billion in annual revenue for the company a few years down the road. That would be a nearly 4% boost to Amgen's annual revenue alone. The cancer drug Lumakras is another product that could be a blockbuster for Amgen.
Along with dozens of projects in different stages of clinical development in its pipeline, the company should be set to do well for many years to come.
Image source: Getty Images.
The market-trouncing dividend is secure
Amgen's 3.2% dividend yield is double the S&P 500 index's 1.6% yield. And better yet, Amgen's dividend is safe and set to continue growing for many more years.
This is supported by the fact that it is projected Amgen's dividend payout ratio will be 44.5% in 2022. The company's retained capital is more than enough to pay down debt, execute share buybacks, and complete acquisitions moving forward. This is why analysts believe Amgen's adjusted diluted EPS will grow 8% annually over the next five years, which is also what dividend growth should be for at least the next few years.
A sensible valuation for income investors
Amgen is a wonderful business. Amgen's forward price-to-earnings (P/E) ratio of 14.1 is a tad higher than the pharmaceutical industry's average forward P/E ratio of 13.1. But that's hardly an undeserved premium for one of the most dominant pharmaceutical companies in the world.
Amgen also appears to be a bit discounted compared to its historical price-to-sales (P/S) ratio. The company's trailing-12-month P/S ratio of 5.1 is a touch lower than the 10-year median P/S ratio of 5.3. That's why income investors would be smart to consider buying Amgen for their portfolio.
