Join        Login             Stock Quote

Amgen (AMGN): Dividend Hike Presents Near-Term Trading Opportunity

 November 26, 2012 09:54 AM

(By Mani) Biotech firm Amgen, Inc. (NASDAQ: AMGN) is expected to increase its dividend by 30-35 percent in December that would bring in new, additional capital into the company.

The company is poised to give more returns to shareholders in the form of dividends as its mature franchises are generating more than $5 billion a year in operating cash flow, which it could use to pay dividends and buyback shares.

Moreover, Amgen is the only large cap biotechnology company paying a dividend, which may attract a broad range of generalist, dividend, and value investors.

Amgen has announced plans to return 60 percent of adjusted net income to shareholders via buybacks and dividends by 2015. As the stock price has increased, the company has decreased the total amount of capital spent on buybacks and the majority of capital returned to shareholders will be via dividends going forward.

[Related -Amgen, Inc. (NASDAQ:AMGN): What Will Drive Amgen This Year?]

"We continue to see the trend of declining buybacks in 4Q12 as supporting our thesis. We believe that a large dividend increase for a very large and liquid company may attract more dividend/value investors into the name around year-end," Oppenheimer analyst Boris Peaker said in a note to clients.

Specifically, Amgen ended the third quarter of 2012 with 768.1 million shares outstanding and reported 767.4 million shares on Oct 29, suggesting that the company bought about 700,000 shares back in October, and is estimated to buy back 10 million shares in 2013.

[Related -Amgen, Inc. (AMGN) Q3 Earnings Preview: Pipeline In Focus]

"Based on an estimated adjusted income of $5.4B ($6.97/share), $6.4B ($8.30/share) and $6.4B ($8.38/share) in 2013, 2014, and 2015, respectively, we model dividend growth of 35% annually," Peaker said.

From a timing perspective, some biotech investors may be expecting a dividend increase announcement in early 2013 at the JP Morgan conference or at the analyst meeting. However, Amgen has a board meeting scheduled for December, and it is believed that the 2013 dividend will be announced shortly thereafter.

"We model a 35% dividend increase from $1.44/share in 2012 to $1.94/share in 2013. That is ~$1.5B in dividend payments in 2013. If the company opts for buybacks instead, we anticipate the buyback allocation to be significantly higher, $3B-5B," Peaker said.

One risk to the dividend estimate is the potential concern about tax increases on dividends in 2013. It is possible, as an alternative to a dividend hike, the board may announce increased allocation to the buyback program for 2013. Either way, it is expected to have a positive impact on the stock.

Amgen, which has a dividend yield of 1.6 percent, has a payout ratio of 29 percent implying that it has room to increase its dividend. Even at 35 percent growth rate, the stock a payout ratio of only 48 percent of adjusted net income in 2015, suggesting potential upside to the estimated dividend growth.

Over the last three years, Amgen has raised over $14 billion in debt and repurchased over $15 billion in stock. In 2011, it returned $500 million to shareholders through dividends. The company is on pace to return more than $1.0 billion, or about 20 percent of its earnings, to shareholders for 2012.



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageBogle Says Indexing Destined To Win The Battle Of The Quants

Vanguard founder John Bogle gave a powerful speech last month at the Q Group’s Spring Seminar that lays out read on...

article imageVMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years

REX Shares is launching two new VIX exchange-traded products on Tuesday in what is likely to be the most read on...

article imageThe April 29 Gold Triangle Breakout Update

If you’re just watching stocks, you may be missing this powerful Triangle Breakout surge in read on...

article imageSell In May, But It Is A Presidential Election Year

With May just around the corner, articles covering the "Sell in May' phenomenon are not in short supply and read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.