Economic and geopolitical concerns have weighed heavily on investor sentiment throughout the year. And even as the S&P 500 index has rallied in recent weeks, it is still down 17% year to date.
Investors seeking more certainty in an uncertain environment would do well to consider buying safe, high-yielding dividend stocks. This is because the highest-quality income stocks can provide ever-growing passive income to investors through almost any economic downturn.
And pharma stock Amgen (AMGN -1.33%) is arguably a top-notch dividend stock. But is it a buy for income-oriented investors? Let's take a deeper dive into Amgen's fundamentals and valuation to try and answer this question.
A solid product portfolio
The Thousand Oaks, California-based company has established itself as a leading pharmaceutical business since its founding in 1980. Amgen's $149 billion market capitalization makes it one of the largest pharmaceutical companies in the world.
Unsurprisingly, the company has a portfolio of more than two dozen drugs spread out across therapy areas like cardiometabolic, bone health, and oncology. And nine of these drugs remain on track to surpass $1 billion in 2022 revenue. These blockbuster products include the immunology drugs Enbrel and Otezla, the osteoporosis drugs Prolia and Xgeva, and the bad cholesterol-lowering drug Repatha.
Amgen's revenue dipped 0.8% lower year over year to $6.7 billion for the third quarter ended Sept. 30. Adjusting for unfavorable foreign currency translation due to the robust U.S. dollar, Amgen's revenue increased by 2% during the quarter over the year-ago period.
New product launches like the cancer drug Lumakras and the asthma drug co-owned with AstraZeneca (AZN 5.38%) called Tezspire fueled 8% year-over-year volume growth in the quarter. But this was offset by a 5% drop in the company's average net selling price as a result of price declines in legacy drugs, including Enbrel and the radiation sickness drug Neulasta.
Amgen posted $4.70 in non-GAAP (adjusted) diluted earnings per share (EPS) for the third quarter. For context, this was 15.2% higher than the year-ago period. Tight cost management powered Amgen's non-GAAP net margin 340 basis points higher year over year to 38% during the quarter. Paired with a 5.6% decrease in the outstanding share count to 538 million in the quarter, this explains how adjusted diluted EPS growth topped revenue growth in the quarter.
With nearly 40 compounds under development and sales of Lumakras and Tezspire set to ramp up, analysts are forecasting Amgen will deliver 6.6% annual adjusted diluted EPS growth through the next five years.
Image source: Getty Images.
Strong dividend growth can be maintained
Amgen offers investors a 2.7% dividend yield, which is significantly greater than the S&P 500 index's 1.6% yield. And if this market-topping starting income weren't enough, the company's dividend growth prospects are also promising.
Amgen's dividend payout ratio is poised to come in below 44% in 2022. This should allow the company to retain capital for future growth, debt repayment, and share repurchases. Since the payout ratio could expand further without any issues, the dividend should grow somewhat ahead of earnings in the years ahead. That's why I expect high-single-digit annual dividend growth over the next several years.
The blue-chip stock is a decent value
Amgen's share price has surged 23% higher year to date, while the drug manufacturing industry as a whole is up only 9% so far in 2022. Surprisingly, the stock is still reasonably priced.
Amgen's forward price-to-earnings (P/E) ratio of 15.3 is just above the pharmaceutical industry average of 14.2 while the biotechnology industry is trading 15.2 times forward earnings. That means while Amgen's shares are trading more or less in line with peers, its quality as a business makes the stock a buy for income investors.
