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Alberto Abaterusso
Alberto Abaterusso
Articles (1297) 

Amgen Increases Quarterly Dividend

The US global biopharma will distribute $1.45 per share

December 09, 2018 | About:

Amgen Inc. (NASDAQ:AMGN) has informed the market Friday after closing bell that the board of directors of the company has authorized the payment of a quarterly dividend for the first trimester of fiscal 2019. The company will pay shareholders a cash dividend of $1.45 per share, reflecting a 9.8% increase from the previous one.

Shareholders will receive the payment on March 8, 2019. Investors who want to receive the dividend must be on the U.S. pharmaceutical company’s record not later than Feb. 15. The ex-dividend date is for Feb. 14.

If held constant, the quarterly distribution of $1.45 will produce a yearly dividend of $5.8, for a forward yield of 3.03% according to the share price of $191.44 at close Friday. Amgen is beating both the industry and the entire market in terms of higher dividend yield. In fact, the industry has a median of 0.95% and the S&P 500 index has a 1.99% dividend yield.

The company is paying a dividend since 2011.

Amgen is supporting the dividend payment with nearly $30 billion in cash on hand and securities or total cash per share of $46.96, practically enough for covering the payment of $5.80 cash annual dividend per share for eight years, and with a over $10 billion operating cash flow that the company can generate every 12 months. To give you a better idea: the yearly free cash flow is 2.5 times what Amgen needs to make its shareholders happy with the dividend. The rest of the free cash flow, which is about 60%, is used to increase liquidity on hand, make short-term investments and to upgrade its portfolio of products which are designed for the treatment of several illnesses in the field of oncology, haematology, cardiovascular diseases, inflammation, nephrology, bone health and neuroscience.

Some of the most fruitful products of the portfolio are:

  • Neulasta, which is a white blood cell stimulator to help lower the risk of infectious diseases during strong chemotherapy. Neulasta covers nearly 20% of total revenues.
  • Enbrel, which is used for the treatment of moderate to severe rheumatoid arthritis and other chronic diseases. Enbrel gives more than 22% to total revenues.
  • Sensipar, which is sold in North America and Australia, and Mimpara, which is sold in Europe. Sensipar/Mimpara is used to cure secondary hyperparathyroidism and hypercalcemia. The medication contributes for about 7% to total revenues.
  • Prolia, which is used to help women during the treatment of postmenopausal osteoporosis. These women are at high risk for fractures. Prolia makes about 10% of total revenues.

This portfolio consented Amgen to generate sales for $22.85 billion in full year 2017, for $5.55 billion in the first quarter of 2018, for $6.06 billion in the second quarter of 2018 and for $5.9 billion in the third quarter of 2018.

Amgen’s portfolio of products is an impressive sales generating machine. This is demonstrated by below chart of GuruFocus, depicting the progression in the trailing 12-month sales turnover and the 6.2% average increase per year over the last 5 years. However, the last 5 years average growth is slightly below the industry average of 7.07% and the sector average of 7.59% Reuters.com says.


AMGN data by GuruFocus.com

Concerning the outlook for Amgen’s business over the coming 4 – 5 years, this is positive according to analysts. The revenue is forecasted to increase 2.2% to $23.36 billion in 2018, slightly decrease to $23.142 billion in 2019, to climb again 5.8% to $24.491 billion in 2020 and 18.3% to $28.978 billion in 2021. See below print screen of GuruFocus.com.

Source of the print screen: GuruFocus.com

The business of Amgen is so strong, and financials are so good that Amgen will not only continue guaranteeing the dividend payment for many years ahead but may also proceed with further hikes. This is not chasing a chimera, also taking into consideration of the following prediction. Net earnings will grow 8.84% every year for the next three to five years.

There is only one thing in the balance sheet of Amgen that could give investors cause for concern about the future solvency of the company towards its creditors including dividend recipients. This is the high financial burden Amgen is taking to finance the business. The measure of the company's high financial leverage is given by a total debt-to-equity ratio of 240% compared to an industry median of 28%. For sure Amgen’s total debt doesn’t go unnoticed.

However, the interest coverage ratio of 7.38 is suggesting that the company can pay interest expenses on the outstanding debt. Investors usually consider a threshold of minimum 1.5 for the ratio.

Further, with the income generated from a portfolio of short-term securities, Amgen can cover about 70% of interest expenses on the total outstanding debt saving up to 9% of the profit the company is producing from operations and that otherwise would be used to cover part of the financial cost.

There is anything wrong with taking a lot of debt as long as the investment proves to be more profitable than what it costs. As a matter of fact, despite a rating of only 6 out of 10 that GuruFocus has assigned to the financial strength of Amgen’s balance sheet, the Return on Invested Capital of 11.26% is outpacing the Weighted Average Cost of Capital of 9.3%.

The investment in these short-term securities is a profitable way to invest liquidity available on cash that otherwise will stay unproductive. Concerning the risk of these short-term investments, Amgen has adopted a risk management policy that limits the transaction of financial instruments, including derivatives, representing institutions with an investment grade rating. Exceptions are possible, but these are limited to institutions which credit rating is not inferior to A- or equivalent. The risk management policy also envisages other limits such as restrictions on the invested amount, maturities and concentrations by asset class and issuing institution.

The high amount of debts is mainly due to deficit that Amgen has accumulated over time as a result of stock repurchase programs. However, consistent profitability and a solid financial position of Amgen should prevent the accumulated deficit to cause troubles for the future of the company, the remuneration of shareholders through dividend payment and stock buy backs and for the repayment of the debt. During the 9 months through the third quarter of 2018 Amgen has repurchased $15.7 billion of its ordinary stock.

In addition, the total debt is characterized by a very manageable repayment schedule. Less than 2% is debt that the company must refund within 12 months, less than 50% is due between 1 and 5 years, of which about 35% is due between the fourth and the fifth year, and more than 50% is due not before 2024.

Amgen closed at $191.4 per share on Friday for a market capitalization of $121.99 billion. The stock gained 9% for the 52 weeks through Dec. 7, outperformed the S&P 500 index by nearly 10% and is trading far below the 100- and 50-day simple moving average lines. The share price is above the 200-SMA line.

The 52-week range is $163.31 to $210.19 per share. The 14-day relative strength index is 43, suggesting the stock is neither overbought nor oversold.

Amgen has a price-book ratio of 8.56 versus an industry median of 4.1, a price-sales ratio of 5.62 and a price-earnings ratio of 50.64 versus an industry median of 28.79. The forward price-earnings ratio is 13.57. When this figure is multiplied by a weighted average of $14.18 for full fiscal years 2018 and 2019, it yields a value of $192.42 per share, which is 0.5% higher than the share price at close Friday.

The average target price is $204.8 per share, and the recommendation rating is 2.3 out of 5.

As of December, three analysts strongly recommend buying Amgen, seven analysts have a buy rating and 15 analysts recommend holding the stock.

In addition, the Peter Lynch chart is suggesting that Amgen is expensive.

Disclosure: I have no positions in any securities mentioned in this article.

About the author:

Alberto Abaterusso
If somebody asks what being a Value Investor means, Alberto Abaterusso would answer: “the Value Investor is not the possessor of a security that represents the company, but he is the owner of that company. As an owner of the company the Value Investor is actively involved in the dynamics of that company and his first aim is how to have sales progressively growing.”

Alberto Abaterusso would add: “probably the Value Investor is one of the least patient persons in the world concerning sales.”

Alberto Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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