If you're looking for dividend stocks that can provide steady income and growth potential, you might want to consider adding Amgen(NASDAQ: AMGN) and American Express(NYSE: AXP) to your portfolio. These two companies have strong competitive advantages, solid financial performance, and generous dividend policies that make them attractive to long-term investors. Read on to find out more about these top-shelf dividend stocks.
Amgen: An attractive buy-and-hold vehicle
Amgen is one of biotech's original pioneers, with a diversified portfolio of drugs and biosimilars that treat various diseases, such as cancer, cardiovascular, inflammation, and bone health. The company's broad product portfolio consists of 27 approved products, nine of which achieved sales in excess of $1 billion in 2022. What's more, Amgen's broad product portfolio and heavy emphasis on innovation in the clinic should translate into sustainable top- and bottom-line growth over the long haul.
On the dividend front, Amgen stock pays $2.13 per share on a quarterly basis, which translates to an annual yield of approximately 3.3% at current levels. The company has raised its dividend every year since 2011 at a compound annual growth rate (CAGR) of approximately 10%. With a fairly reasonable payout ratio of 54.8%, the biotech should be able to comfortably support additional hikes to the dividend in the years ahead. Lastly, Amgen has a rich tradition of buying back shares. Since going public, the biotech has reduced its outstanding share count by a noteworthy 42.5%.
In sum, Amgen sports a sizable economic moat because of its robust product portfolio and innovative clinical pipeline, an attractive dividend yield, and a lengthy track record of regular share repurchases. That's an appealing mix for investors on the hunt for a reliable source of income and steady capital appreciation. Now, Amgen's balance sheet is highly leveraged because of a string of bolt-on acquisitions, which some income investors might find worrisome. But with a portfolio capable of producing sustainable and growing levels of free cash flow, the biotech's heavy debt load shouldn't diminish its ability to pay a top-shelf dividend.
American Express: A tried-and-true value creator
American Express is one of the world's leading financial services companies, with a global network of cardholders, merchants, and partners that spans over 198 countries and territories. The company offers a range of products and services, such as credit cards, charge cards, travel, rewards, and business solutions. American Express has a loyal customer base, with a retention rate of 95% in 2022, and a premium brand image that allows it to charge higher fees than its competitors.
American Express pays a quarterly dividend of $0.60 per share, which translates to a modest annual yield of 1.52% at current levels. While the company doesn't offer the richest payout, it does have an exceptionally long track record of paying a dividend and its payout has risen at a healthy 10% CAGR over the past decade. With a trailing 12-month payout ratio of only 22.7%, the company also has ample room for additional hikes to its quarterly distribution. On a final note regarding shareholder rewards, American Express regularly buys back its own shares. Underscoring this point, the company has repurchased over 30% of its outstanding shares over the past 10 years.
American Express' premium brand building and generous shareholder rewards program has proven to be a winning combo for shareholders over the years. Speaking to this point, the company's shares have delivered market-crushing returns (when including the dividend) since debuting on the New York Stock Exchange in 1977 (see chart below). With an entrenched market position, an exceptionally loyal customer base, and an eye toward returning cash to shareholders, American Express should continue to be an outstanding capital appreciation and income vehicle for the foreseeable future.
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American Express is an advertising partner of The Ascent, a Motley Fool company. George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.