
Buy Amgen's Healthy Dividend, Hold for Its Growth Prescription
Shares of drug giant and biotechnology specialist Amgen (AMGN) - Get Report will trade ex-dividend Thursday. To qualify for a dividend check, investors must own shares of the Thousand Oaks, Calif.-based company on or before that day, when Amgen finalizes the roster of shareholders to whom it will send payments this quarter. And investors would do well to buy these shares now.
Despite beating Wall Street's revenue and earnings-per-share estimates in five straight quarters, Amgen's stock -- flat on the year and down 6% over the past three months -- has been a disappointment compared to the 13% year-to-date gains in the SPDR S&P Biotech ETF (XBI) - Get Report -- home to market leaders like Biogen (BIIB) - Get Report and Alexion Pharmaceuticals (ALXN) - Get Report .
But unlike Biogen and Alexion, which pay no dividend, Amgen's 79-cent quarterly payout yields 2.10% annually. The company is scheduled pay its dividend on Dec. 7 to shareholders of record as of Nov. 16. It's true, Amgen's yield is only on par with what the yield for the S&P 500 (SPX) index. But Amgen is projected to grow fiscal 2015 earnings of $9.76 a share at 13% -- more than twice the projection for the S&P 500.
What's more, based on fiscal 2016 consensus earnings estimates of $10.66 a a share, Amgen -- trading at around $159 -- is priced at just 14 times forward earnings, compared to a forward P/E of 17 for the S&P 500. Apply a 17 P/E to those forecasts and the stock would be priced today at around $181, or some 15% higher than current levels.
Buying dividends -- a strategy consists of buying stocks for the sole purpose of collecting the announced quarterly dividend and then immediately selling the stock as soon as possible after the payout -- can be lucrative. In this case, however, holding Amgen shares beyond the dividend payment can be even more rewarding. Not only does the stock have a consensus buy rating, its average analyst 12-month price target of $185 is some 16% higher than current levels.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.








