Dividend stocks are versatile investments that can serve different purposes in a portfolio. Some investors rely on them for a steady stream of income, which can be paid monthly, quarterly, or annually depending on management's policy. Others use them to boost their portfolio's performance by reinvesting the dividends to compound their returns over time.
Still others use dividend stocks to achieve capital growth in difficult markets. However, it is rare to find dividend stocks that can offer both income and market-beating capital growth because of the way dividend payments affect a company's stock price (adjusted lower on the ex-dividend date), as well as its financial position (less cash and lower retained earnings).
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Here is a brief overview of one blue-chip dividend stock that has successfully served both roles (income generation and above-average capital appreciation) over the past 12 years and that also appears more than capable of continuing this tradition for the foreseeable future.
Amgen: A dual-threat dividend stock
Since 1980, Amgen (AMGN 0.22%) has been at the forefront of the revolution to transform healthcare through the advent of biologically based medicines. And this effort has been a boon for shareholders. In its initial 28-year history as a pure-play growth stock, Amgen stock generated a jaw-dropping 15,540% return on capital.
Most impressively, though, the biotech has continued to produce market-beating returns for shareholders since instituting a dividend program in 2011. Excluding dividends, its stock has gained 388.9% in the past 12 years.
But if you reinvested the dividends every quarter, your total return would be a whopping 574.7% (before taxes). With or without reinvesting the dividend, Amgen's stock has delivered demonstrably superior returns compared to the Vanguard 500 Index Fund over this period. For reference, the Vanguard 500 Index Fund tracks the performance of the benchmark S&P 500.
AMGN Total Return Price data by YCharts.
Can Amgen stock keep delivering market-beating returns?
The biotech has lagged behind the broader market in 2023, but it has a bright future ahead. Its strategy of focusing on volume growth rather than price increases should help it navigate the changing U.S. healthcare landscape.
Moreover, Amgen has brought several important new medicines to market in recent years, such as the cholesterol-lowering drug Repatha, osteoporosis therapy Evenity, asthma medication Tezspire, and leukemia drug Blincyto. All of these drugs have experienced robust demand in recent quarters, and all are expected to be key growth drivers for the company over the next few years.
Its broad clinical pipeline is also home to several potential blockbusters that could drive significant revenue growth in the second half of the decade. Additionally, Amgen's recent acquisition of Horizon Therapeutics considerably bolsters its rare-disease portfolio, an area known for its strong pricing power and unusual commercial longevity. In short, the biotech should deliver strong revenue growth in the years ahead.
On the dividend side, Amgen stock offers a generous 3.21% yield on an annualized basis. That's nearly double the average yield among S&P 500 listed stocks. The biotech's modest trailing-12-month payout ratio of 59.2% also implies that the company should be able to comfortably afford additional dividend raises.
Key takeaway
Overall, Amgen is one of those exceptionally rare stocks that can both generate above-average share-price appreciation, as well as a steady stream of income. That's a potent combination that ought to appeal to any kind of investor.
