Few other investment vehicles have arguably done more to enrich investors than the U.S. stock market. For example, A $5,000 investment in the S&P 500 index executed 10 years ago in 2013 would be valued at $16,000 today with dividends reinvested.
Pharmaceutical giant Amgen (AMGN 0.22%) is a component within the S&P 500 index. Having turned a $5,000 investment made in 2013 into $14,000 with dividends reinvested, its returns have moderately lagged the index. But here are three reasons why dividend growth investors may not regret adding Amgen to their portfolios.
1. Proven dedication toward cutting-edge therapies
Since its founding in 1980, Amgen has devoted itself to fostering a culture of innovation. The company has routinely spent between 16% and 19% of its total revenue on research and development for years now. Major product launches such as the cholesterol-lowering drug Repatha, multiple myeloma treatment Kyprolis, and osteoporosis medicine Prolia have generated solid growth for the company.
In fact, Amgen's total revenue has steadily grown from $18.7 billion in 2013 to a projected $26.6 billion in 2023. Analysts predict the sizable 2023 figure because out of the dozens of products in the company's portfolio, nine of them are each on pace to top $1 billion in revenue this year. Amgen's non-GAAP (adjusted) diluted earnings per share (EPS) are expected to soar from $7.60 in 2013 to $17.75 in 2023.
Amgen also looks to be in an enviable position for the foreseeable future. Aside from the numerous billion-dollar medicines in its portfolio, the company has several recently launched products with similar peak sales potential: Humira biosimilar Amjevita, oncology therapy Lumakras, and the respiratory/immunology drug co-owned with AstraZeneca called Tezspire.
On top of these approved drugs, Amgen has dozens of molecules currently in different stages of clinical trials. Thanks to the company's pending acquisition of Horizon Therapeutics, adjusted diluted EPS could growth at a healthy rate over at least the medium term.
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2. A commitment to healthy dividend growth
Amgen's 3.7% dividend yield is enough to attract attention from income investors when stacked up against the S&P 500 index's 1.5% yield. And unlike many companies with dividend yields approaching 4%, Amgen isn't a slouch on dividend growth, either. The company's most recent dividend hike announced last December was nearly 10%.
And when considering that Amgen's dividend payout ratio is set to register at 48% for 2023, similar dividend growth could continue in the years ahead. That's because such a payout ratio enables the company to retain the funds necessary to support business growth, debt reduction, and share buybacks.
3. A tremendous business at a decent valuation
Shares of Amgen have dipped 6% in the past 12 months. But this seems to have created a buying opportunity for dividend growth investors. Amgen's forward price-to-earnings (P/E) ratio of 12.3 is below the drug manufacturer industry average of 13.2. If anything, the stock should be trading in line with its industry peers at a minimum.
And if that wasn't enough, Amgen's trailing-12-month price-to-sales (P/S) ratio of 4.8 is also less than its 10-year median of 5.3. That's a somewhat cheap valuation for a company with stable fundamentals such as Amgen.
