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Nathan Parsh
Nathan Parsh
Articles (193) 

3 Stocks Delivering Over 10% Dividend Increases

Amgen, Broadcom and Eli Lilly have all recently announced dividend increase of at least 10%, but only one of these names trades below its GF Value

December 18, 2020 | About:

This is an exciting time for dividend growth investors as it seems companies of all sizes and industries are announcing dividend increases. We will highlight three large companies that have provided their shareholders with at least a 10% dividend increase in recent weeks.

Amgen

Amgen Inc. (NASDAQ:AMGN) is one of the leading independent biotech companies in the world. The company discovers, develops, manufactures and brings to market medicines used to treat a whole host of ailments, including rheumatology, osteoporosis and inflammation, among other areas. Amgen has a market capitalization of $132.5 billion and generated more than $23 billion in sales last year.

On Dec. 16, Amgen announced that it was increasing its quarterly dividend 10% to $1.76. The dividend is payable March 8, 2021 to shareholders of record at the close of business on Feb. 14. The company has now raised its dividend for 11 consecutive years. The dividend has a compound annual growth rate of 27.6% over the past decade. However, that growth has slowed to just under 10% annually over the last five years.

Based on the annualized dividend of $7.04 and the current share price of $228, Amgen has a new yield of 3.1%. According to Value Line, shares have an average yield of 2.2% since the company began paying a dividend. For additional context, if Amgen were to hold average the current yield for an entire year, it would be the highest since the company began distributing dividends.

Amgen is expected to earn $16.17 this year, according to analysts surveyed by Yahoo Finance. The stock has a forward price-earnings ratio of 14.1. Shares have an average multiple of 13.1 times earnings since 2010.

That said, GuruFocus believes that Amgen is trading below its intrinsic value.

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Amgen has a GF Value of $245.58 according to GuruFocus. Using the current share price, this gives the stock a price-to-GF Value of 0.93. Amgen has a rating of fairly valued at the moment. Shareholders could see a 7.8% gain if the stock were to trade with its GF Value. Add in the dividend yield at the GF Value, which would be 2.9%, and Amgen could offer a total return approaching 11%.

Amgen has a rather short history of paying a dividend, but has demonstrated a willingness to return ample capital to shareholders. In addition to paying a hefty dividend, the company has retired 4.4% of outstanding shares annually from 2010 to 2019. Shares of the company have endured a difficult 2020 and are down more than 8% over the last three months. Even so, there is enough total return potential for me in the name that I added to my position in Amgen on Dec. 18.

Broadcom

Broadcom Inc. (NASDAQ:AVGO) is a leading supplier of semiconductors. The company designs, develops and supplies products such as radio frequency amplifiers, filters and front-end modules. Broadcom's end markets include wireless communications, industrial and automotive. The company is valued at $175 billion today and produced revenue of almost $24 billion over the last year.

On Dec. 10, Broadcom announced that it was raising its quarterly dividend 10.8% to $3.60. The dividend is payable Dec. 31 to shareholders of record at the close of business on Dec. 21. The company has now increased its dividend for 11 consecutive years. As with Amgen, Broadcom has been quite aggressive with its dividend. The CAGR is almost 42% since 2011.

Using the annualized dividend of $14.40 and the current share price of $432, Broadcom yields 3.3%. This compares very favorably to the stock's long-term average yield of 2%. The stock has only averaged a yield above 3% once since initiating a dividend (2019).

Broadcom is expected to earn $26.01 per share in its current fiscal year (which ends Oct. 31), giving the stock a price-earnings ratio of 16.6 today. Broadcom's earnings history has been uneven over the past decade, which has resulted in several years of significant drops in earnings per share. Since 2010, shares have an average price-earnings ratio of 21.

GuruFocus believes the stock's valuation is rich.

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Broadcom has a GF Value of $321.16, which gives the stock a price-to-GF Value of 1.35. This earns the stock a rating of significantly overvalued from GuruFocus. Shares would have to decline 26.3% to trade with the GF Value. At the GF Value, the yield would be 4.5%, which is more than double the stock's 10-year average yield.

Broadcom's dividend has increased at a very high rate for quite a long time and the stock offers a solid yield at the current price. The issue that many investors might have with the stock is its valuation. Shares trade well above what GuruFocus sees as its intrinsic value. Part of this is due to the stock's outperformance in 2020 as it is up almost 37% year to date. The yield and dividend growth have my attention, but I believe a better price point would make for a better entry into Broadcom.

Eli Lilly

Eli Lilly & Co.(NYSE:LLY) is a health care company that specializes in discovering, developing, manufacturing and marketing pharmaceutical products. The company's products address needs in oncology, immunology, diabetes and endocrinology. Eli Lilly has a market capitalization of $162 billion and generated $22 billion in revenue last year.

On Dec. 14, Eli Lilly raised its quarterly dividend by 14.9% to 85 cents. The new dividend is payable March 10 to shareholders of record at the close of business on Feb. 12. Eli Lilly has now increased its dividend for seven consecutive years following a number of years of muted growth. Due to this, the CAGR for the dividend is just 2.8% since 2010. On the plus side, the dividend increase has been at least 14% each of the last three years.

The new annualized dividend of $3.40 gives shares a yield of 2% using the current share price of $169. This is well below the 10-year average yield of 3.5% and still below the five-year average yield of 2.5%.

Analysts expect the company to earn $7.48 per share in 2020, which would give the stock a price-earnings ratio of 22.6. This is a premium to the stock's 10-year average price-earnings ratio of 16.4. The valuation does appear not as steep, but still expensive when using the five-year average price-earnings ratio of 20.

GuruFocus agrees that Eli Lilly is overvalued.

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Eli Lilly has a GF Value $148.73. This means that the stock has a price-to-GF Value of 1.14, which earns Eli Lilly a rating of modestly overvalued. The stock would need to decline 12% in order to trade with its GF Value. At the GF Value, the yield would be 2.3%.

Shares of the company have gained 29% year to date. Eli Lilly has the shortest history of dividend growth on this list, but also happens to have the highest recent increase. The company has also declared an increase of at least 14% each of the last three years. Still, the stock's yield even at the GF Value would still be below Eli Lilly's medium and long-term average. While the near-term dividend increases are appealing, I would wait for a better price before adding Eli Lilly to my portfolio.

Final thoughts

Amgen, Broadcom and Eli Lilly all delivered at least a 10% dividend increase to shareholders over the last week or so. Of these names, I find only Amgen to be a buy today, though I am interested in Broadcom at a lower price. Eli Lilly's recent dividend growth has been excellent, but the stock's yield is off of its long-term average. Closer to this level and I might find the name a better opportunity.

Disclosure: The author maintains a long position in Amgen.

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About the author:

Nathan Parsh
I am originally from the Detroit, Michigan area, before moving to Maryland to begin a career as an educator. This is my 15th year teaching. My wife and I have two young children who keep us on our toes.

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