Dividend stocks are potent instruments for building wealth. A staggering 85% of the S&P 500's total returns since 1960 have emanated from dividend payouts, according to a report by Hartford Funds.
Amgen(NASDAQ: AMGN), a top-tier U.S. biotech firm, has been a coveted dividend stock since it began regular distributions to shareholders in 2011. Highlighting this fact, the company's shares have significantly outperformed the S&P 500 during this time.
AMGN Total Return Level data by YCharts.
Can Amgen's stock continue to deliver excess returns relative to this benchmark index? Let's delve into the drugmaker's core value proposition to find out.
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Amgen: A reversal of fortune
Amgen's shares have gotten off to a rocky start in 2024. Since the start of the year, the biotech's stock price has fallen by a hefty 8% compared to a nearly 7% gain for the S&P 500.
Amgen's stock has come under pressure following a bull run in 2023. Investors bid up the biotech's stock by almost 10% last year in response to the excitement over its experimental weight loss candidate, MariTide.
Early-stage data suggest MariTide might sport a dosing advantage over competing drugs in the category and, perhaps, a superior safety profile as well.
If this line holds, Amgen should be able to capture a worthwhile share of the potentially $100 billion-plus weight loss drug market, possibly supercharging the drugmaker's earnings in the next decade. However, recent readouts from other obesity-care candidates have muddied the waters regarding MariTide's commercial opportunity, which appears to be one of the main culprits behind Amgen's poor start to the year.
A compelling valuation and dividend yield
Amgen's stock is trading at 13.6 times forward earnings following its pullback in 2024, qualifying as bargain territory within its blue chip biotech peer group (average forward-looking price-to-earnings ratio of 17). It also looks cheap compared to the S&P 500, which trades at approximately 20 times forward earnings.
On the dividend side of the ledger, Amgen's shares pay a generous 3.39% annualized yield. That compares favorably to the 3% average yield among big pharma stocks and the 1.35% average yield of S&P 500 constituents. So, as an income stock, Amgen stands out from the crowd.
The verdict
Can this high-yield dividend stock outperform the S&P 500 this decade? This is a tough question to answer at the moment.
As a high-profile weight loss candidate, MariTide has peak sales estimates reaching as high as $4 billion annually. However, it's important to note that MariTide still has a significant journey before it hits the market, and numerous challenges could arise along the way.
There are also several competing weight loss therapies currently undergoing trials at the moment. It is, therefore, too early to predict winners and losers in this lucrative pharmaceutical market.
Despite these uncertainties, it's worth noting that Amgen's success doesn't hinge solely on MariTide. Even if it doesn't outperform the S&P 500, Amgen's stock ought to deliver positive returns this decade. After all, Amgen has a robust product portfolio, exceptional clinical pipeline, strong management team, and a solid dividend program.
In all, Amgen's shares present a relatively low-risk growth opportunity with the potential for market-beating returns over the long term. Therefore, this high-yield dividend stock is worth considering for growth-oriented investors with a low to medium risk tolerance.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
