What Will Drive Amgen’s Dividends?



What led to the revenue decline?

Amgen (AMGN) has five-year dividend growth of 26%. The company also has maintained an impressive free cash flow balance. The company’s revenues have grown consistently in the last five years. However, revenues fell 1% in 2017 after 6% growth in 2016. The fall was due to lower product sales. Aranesp, Neulasta, Enbrel, Epogen, and Neupogen sales fell on a year-over-year basis in 2017.

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What drove the EPS growth?

Cost of sales fell 2% in both 2016 and 2017. As a result, gross profit grew 8% in 2016 and remained flat in 2017. Operating expenses rose 1% in 2016 and decreased 3% in 2017, which led to 16% and 2% growth in operating income for 2016 and 2017, respectively. Interest expenses rose 28% in 2016 before falling 40% in 2017, which translated into 10% and 5% growth in net income for 2016 and 2017, respectively. EPS expanded 12% and 8% in 2016 and 2017, respectively. Share buybacks enhanced the EPS numbers.

Dividends and prices

A PE of 64.3x and a dividend yield of 3% compares to a sector average PE and a dividend yield of 89.5x and 2.9%, respectively. The dividend yield has exhibited a growing trend over the years. It recorded the highest growth in 2016 due to dividend growth and price loss. Prices fell in 2018 following the announcement of financial results on January 24, 2018. However, Donald Trump’s speech on drug pricing on January 31 was followed by a decline in prices for the pharma companies.

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What will drive the revenue and EPS growth?

The company plans to grow its investments to drive the additional volume-driven growth of innovative medicines in large patient populations. It also includes a new US manufacturing plant. The company specializes in differentiated medicines ranging from medicines catering to large patient populations like Repatha and specialized markets like Xgeva. With rising pressure on prices, revenue growth will be directly proportional to volume growth. Repatha, Prolia, and Kyprolis are expected to be key growth drivers followed by Aimovig and biosimilars. The company expects revenue to fall 1% to $22.6 billion in 2018. EPS could grow 6% to $13.4.

Dividend ETFs with exposure to Amgen

The Fidelity Dividend ETF for Rising Rates (FDRR) has a PE of 17x and a dividend yield of 2.9%. The Vanguard High Dividend Yield ETF (VYM) has a PE of 21.6x and a dividend yield of 2.8%.


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