Dividends are great for passive income or can help boost stock market returns over long periods for those who opt to reinvest them. However, not all dividend-paying companies are created equal. While some will reduce or suspend their dividend payments when troubles arise, others will likely continue rewarding their shareholders with regular payout increases.
Let’s look at one company in the latter category: Amgen (NASDAQ: AMGN). Here’s why this biotech giant is an excellent dividend stock to buy today.
Amgen’s revenue growth hasn’t been stellar
Amgen’s financial results for 2022 were subpar, especially on the top line. The company’s revenue increased by a meager 1% year over year to $26.3 billion. Even considering the negative impact of currency exchange-rate fluctuations, the biotech’s top line increased by just 3%, which is still not very impressive.
Amgen’s sales haven’t grown a lot in the past couple of years, as the graph below shows.
AMGN Revenue (Annual) data by YCharts.
Amgen did better on the bottom line last year. The company’s net income jumped by 11% year over year to $6.6 billion last year. However, Amgen’s unimpressive sales growth of late will need to be addressed. Can the company improve on this front?
Management continues to hike the dividend
It’s worth noting that, despite the lackluster revenue growth, Amgen has continued to increase its dividend. The company’s payouts have jumped 33.1% over the past three years.
Clearly, management isn’t too worried, and investors shouldn’t be, either. Amgen is going through a period that all biotechs experience, where some of its products face tough competition, hindering sales growth.
The key is whether the company can earn approval for new products — or earn enough label expansions for existing products — to get back to stronger growth. This year alone, Amgen has already earned two key regulatory wins.
First, its asthma treatment Tezspire, co-marketed with AstraZeneca, won the nod from the U.S. Food and Drug Administration (FDA) for self-administration. Tezspire is typically administered via subcutaneous injection by a healthcare professional once every four weeks.
Doing it from the comfort of one’s home is much more convenient as it saves patients a trip per dose. This could meaningfully increase the number of doses taken per year, leading to higher sales growth for the product. Tezspire was only approved in 2021 and is still being evaluated in clinical trials.
There are likely more indications in the medicine’s future. The other key approval Amgen earned was for Amjevita, a biosimilar version of AbbVie‘s blockbuster rheumatoid arthritis treatment Humira, which had massive peak sales of $21.2 billion last year.
Amjevita is the first biosimilar of the immunology medicine to hit the U.S. market, so a first-mover advantage could help it earn a decent portion of this opportunity. But that’s not all.
Amgen is running more than 50 clinical trials. Some are for brand-new candidates, while others target additional indications for existing ones. And the company is on the verge of expanding its lineup and pipeline with the acquisition of Horizon Therapeutics for $27.8 billion in cash.
The deal will add about a dozen approved products and many programs to Amgen’s arsenal. Although the transaction will cost quite a bit of money, the company emphasized its commitment to dividend growth, thanks partly to the added cash flow Horizon will help generate. On that front, investors should not have to worry.
Buy and forget
Amgen can appeal to income-seeking investors with a low tolerance for risk. The company’s leadership in the biotech industry means its products are always in need, regardless of economic conditions.
It regularly generates revenue and profits and finds ways to develop newer medicines. Amgen’s business might not be particularly exciting, but slow and steady payout growth is precisely what some are looking for, and that’s exactly what Amgen can offer. That’s why dividend investors can comfortably add shares of the company to their portfolios.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
