Money

Is Amgen the Rare Biotech With a Safe Dividend?

33 total views

When I first started covering the biotech sector 20 years ago, it was pretty difficult to find companies that paid dividends. Even today, there aren’t many of them.

When most investors hear “biotech stocks,” they think of small, unprofitable companies that often don’t even have revenue yet because they don’t have any approved products.

There are lots of biotech companies like that. They need to invest every dollar they have into developing their medicines, so they aren’t able to pay a dividend.

But there are also some mature biotech companies that are very profitable and cash flow positive and can afford to pay dividends.

Amgen (Nasdaq: AMGN) is one of them.

The company pays a $2.25 per share quarterly dividend, which comes out to a 3.3% yield. Biotech can be notoriously volatile, though, so can investors count on receiving the same dividend quarter after quarter?

Amgen’s free cash flow slid from $8.8 billion to $7.4 billion last year. That is something Safety Net does not want to see. Declining free cash flow can be an early sign that a company might struggle to afford its dividend, and Amgen’s one-year and three-year free cash flow growth are both negative.

Fortunately, free cash flow is forecast to leap to $13.3 billion this year. Even if that prediction is way off, this year’s free cash flow will still likely be higher than last year’s (and probably 2022’s as well).

Chart:

Despite the down year in 2023, Amgen was still easily able to afford its dividend. It paid shareholders $4.6 billion for a 62% payout ratio.

In 2024, it’s estimated that the total amount paid in dividends will rise to $4.9 billion. And thanks to the expected jump in free cash flow, the payout ratio should drop to just 37%.

Amgen has also raised its dividend every year since it began paying one in 2011, so it has a strong track record of not only paying the dividend, but boosting it year after year.

As long as free cash flow does in fact grow this year, dividend investors should have nothing to worry about. But if free cash flow doesn’t increase in 2024, investors will need to start watching the stock more carefully.

Dividend Safety Rating: B

Dividend Grade Guide

If you have a stock whose dividend safety you’d like us to analyze, leave the ticker symbol in the comments section below.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds or closed-end funds.

Share this Post

News

About Us

Our mission is to bring retirement news, financial information, and advice to seniors enjoying their golden years.