Once I first began masking the biotech sector 20 years in the past, it was fairly troublesome to seek out corporations that paid dividends. Even at this time, there aren’t lots of them.
When most traders hear “biotech shares,” they consider small, unprofitable corporations that usually don’t even have income but as a result of they don’t have any accepted merchandise.
There are many biotech corporations like that. They should make investments each greenback they’ve into creating their medicines, in order that they aren’t in a position to pay a dividend.
However there are additionally some mature biotech corporations which are very worthwhile and money stream optimistic and can afford to pay dividends.
Amgen (Nasdaq: AMGN) is one in all them.
The corporate pays a $2.25 per share quarterly dividend, which comes out to a 3.3% yield. Biotech could be notoriously risky, although, so can traders rely on receiving the identical dividend quarter after quarter?
Amgen’s free money stream slid from $8.8 billion to $7.4 billion final yr. That’s one thing Security Internet doesn’t need to see. Declining free money stream could be an early signal that an organization would possibly wrestle to afford its dividend, and Amgen’s one-year and three-year free money stream development are each destructive.
Fortuitously, free money stream is forecast to leap to $13.3 billion this yr. Even when that prediction is means off, this yr’s free money stream will nonetheless seemingly be greater than final yr’s (and doubtless 2022’s as nicely).
Regardless of the down yr in 2023, Amgen was nonetheless simply in a position to afford its dividend. It paid shareholders $4.6 billion for a 62% payout ratio.
In 2024, it’s estimated that the entire quantity paid in dividends will rise to $4.9 billion. And due to the anticipated bounce in free money stream, the payout ratio ought to drop to simply 37%.
Amgen has additionally raised its dividend yearly because it started paying one in 2011, so it has a powerful observe report of not solely paying the dividend, however boosting it yr after yr.
So long as free money stream does actually develop this yr, dividend traders ought to don’t have anything to fret about. But when free money stream doesn’t enhance in 2024, traders might want to begin watching the inventory extra rigorously.
Dividend Security Score: B
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