Amgen's (NASDAQ:AMGN) Upcoming Dividend Will Be Larger Than Last Year's

The board of Amgen Inc. (NASDAQ:AMGN) has announced that it will be paying its dividend of $2.38 on the 7th of March, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 3.5%, providing a nice boost to shareholder returns.

View our latest analysis for Amgen

Amgen's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, the dividend made up 81% of cash flows, but a higher proportion of net income. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 98.4%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 65% which brings it into quite a comfortable range.

Amgen Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $2.44 in 2015, and the most recent fiscal year payment was $9.52. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Is Doubtful

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. It's not great to see that Amgen's earnings per share has fallen at approximately 9.7% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Amgen will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Amgen you should be aware of, and 1 of them is a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.