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Amgen: Returning Value to Shareholders

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Sep. 17 2015, Updated 11:05 a.m. ET

Shareholder value

Amgen (AMGN) is committed to returning about 60% of its total net income to shareholders in the form of dividends and share repurchases. However, from 2011 to 2014, the company returned about 90% of its total net income.

The above graph gives a snapshot of the total value returned to shareholders as dividends and share repurchases as well as the total cumulative capital returned from 2011 to 2014. Amgen expects to return an average of about 60% of its net income to shareholders every year from 2015 to 2018. The company will also continue its policy of achieving meaningful increases in the dividend rate.

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In October 2014, Amgen reinitiated its share repurchase program of about $4 billion and aims to purchase about $2 billion worth stock in 2015. In addition to returning capital, share repurchases also result in fewer outstanding shares. This further increases the future earnings per share, or EPS, for remaining shareholders.

Value creation

To sustain its high-value return policy, Amgen focuses on steady deployment of capital in high-return investments. While Amgen returned about $19 billion to shareholders from 2011 to 2014, the company invested $14 billion in research and development and $3 billion in capital expenditures. It invested about $13 billion in mergers and acquisitions targeting innovative products and high-growth geographies. Other biotechnology companies such as Biogen (BIIB), Gilead Sciences (GILD), and Celgene (CELG) are also pursuing mergers and acquisitions to strengthen their product pipeline and enter new markets.

Investors can get diversified exposure to Amgen’s value creation strategy, yet avoid unique company risks, by investing in the iShares NASDAQ Biotechnology ETF (IBB). IBB invests 8.53% of its total holdings in Amgen.

 

 

 

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