Amgen, Inc. (NASDAQ:AMGN) now yields 3% after it raised its dividend by 15% for Q1 2017. This marks the start of its sixth consecutive year dividend hike. Is the biotech company a good buy today? What kind of total returns can you expect from an investment today?
Stable growing earnings, stable growing dividend
Thanks partly to share buybacks, Amgen has generated stable earnings per share (“EPS”) growth for at least 18 years. Even after the 15% raise, Amgen’s payout ratio is expected to remain below 40%.
A group of 37 analysts believes Amgen can deliver EPS growth of 6.9-7.3% in the next 3-5 years. The high single-digit earnings growth rate and reasonable payout ratio should allow Amgen to continue its dividend growth streak.
Moreover, any share repurchases from Amgen will help solidify that earnings growth.
Amgen’s share repurchases
In the recent past, Amgen has been quite strategic in its share buybacks. The company reduced its share count when shares were cheap to reasonably valued (namely between 2008 and 2013) and slowed down its buyback when shares were expensive (mainly parts of 2014 and 2015).
Specifically, in 2014 and 2015, it spent about $2 billion to buy back 12.9 million shares at an average cost of $155 per share.
In the first three quarters, Amgen was more aggressive in its buyback. It repurchased 13 million shares for a total of a little over $2 billion at an average cost of $156 per share. This is a good use of capital as the shares are pretty attractive.
In the third quarter, the board of directors approved an increase in the remaining share repurchase authorization, which I think was a good decision as Amgen shares are discounted.
Amgen is attractive today. In the next 3-5 years, its shareholders can expect annualized returns of 11-13%, while getting a rising dividend.
Unfortunately, I have maxed out the number of words I can include in this excerpt which is mostly from my Seeking Alpha article at Amgen Hikes Dividend By 15%. Is It A Buy, Sell, Or Hold?
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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