In investing, stock selection is everything. While there are thousands of publicly traded companies available, not all are worth putting your hard-earned money into.
One of the more objective measures of quality in investing is a track record of outsized dividend growth. That's because it's something that can't be attained or sustained over the long term without the growth in profits necessary to support higher payouts. Here are two dividend payers in the healthcare sector that have achieved huge payout growth in the past 10 years.
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1. Amgen: A diversified pharmaceutical business
Amgen (AMGN -0.19%), which generated $26.3 billion in revenue in 2022, is among the largest pharmaceutical companies in the world. And as you might expect from a juggernaut like the California-based drugmaker, the company has well-balanced revenue streams.
With a portfolio led by immunology drug Enbrel, which had $4.1 billion in 2022 sales, Amgen has had nine blockbuster drugs. Its impressive product portfolio has allowed the company to grow its dividend tremendously over the past decade. Its quarterly payout has grown more than four-fold from $0.47 per share in 2013 to the current level of $2.13 per share.
AMGN Dividend data by YCharts.
And there are plenty of reasons to believe that management will be able to maintain that rapid payout growth. For one, Amgen's recently launched biosimilar of AbbVie's Humira, named Amjevita in the U.S., could chip in nearly $1 billion in annual revenue. Secondly, the company's newer drugs, such as lung cancer treatment Lumakras, and Tezspire, an asthma medicine it co-owns with AstraZeneca, could also be blockbusters in the making. And the company has dozens of other compounds in various stages of clinical trials. These factors explain why analysts believe Amgen's earnings will grow at a mid-single-digit percentage rate annually over the next five years, which could well be a pessimistic estimate.
Finally, its dividend payout ratio is expected to come in at a modest 48% in 2023. This leaves the company with more than enough funds for bolt-on acquisitions, debt repayment, and share repurchases. That's why I would be surprised if Amgen didn't deliver annual dividend hikes in the high-single-digit percentages over the medium term. At the current share price, it already offers a 3.5% yield (double the S&P 500 index's 1.6% yield).
And trading at a forward price-to-earnings (P/E) ratio of 12.9, the stock is a bit cheaper than the drug manufacturing industry's average forward P/E ratio of 13.6. Simply put, Amgen is an attractive pick for dividend growth investors for the long run.
2. LeMaitre Vascular: Specialization pays off
Berkshire Hathaway CEO Warren Buffett is well-known for the "circle of competence" concept. The basic idea is that you should know your talents and stick to what you know best. While he often applies this to investing, it is just as important for a company's executives to apply it to their management strategy to achieve success and limit failures.
Few companies have heeded this advice more than LeMaitre Vascular (LMAT -0.31%). LeMaitre focuses solely on the peripheral vascular disease medical device market, and its specialization has paid dividends. The company's products hold the top or second-best market share in nine out of 12 product categories, including angioscopes, carotid shunts, and occlusion catheters.
LeMaitre's leadership within its niche has allowed management to boost its quarterly dividend per share from $0.03 in 2013 to the current payout of $0.14. That pace of growth more than makes up for the stock's starting yield of just 1.1%.
LMAT Dividend data by YCharts.
High rates of physical inactivity around the world should drive significant demand for LeMaitre's products in the years ahead. Coupled with acquisitions and product launches, this should produce solid future earnings growth. Further, with a dividend payout ratio expected to clock in at around 48% in 2023, the company is positioned to continue its impressive payout growth.
Best of all, LeMaitre looks to be cheap at the current $51 share price. The stock's Shiller P/E ratio of 59.9 is significantly below its 10-year median of 91.2. The Shiller P/E ratio takes a company's earnings over the last 10 years and adjusts them for inflation, which is thought to present a clearer picture relating to valuation. That helps explain why analysts have an average 12-month price target of $58 on LeMaitre shares, 13% above their current price.
