Beat the Dow Jones With This Unstoppable Dividend Stock

The Dow Jones Industrial Average contains 30 of the highest quality businesses in the world. That’s why it shouldn’t come as a surprise that investing in the index can make investors rich if given enough time.

And the pharmaceutical company known as Amgen (AMGN 0.06%) is the crème de la crème of this index. A $10,000 investment in the stock made 10 years ago would now be worth $37,000 with dividends reinvested. For context, that is nearly double the $20,000 that the same investment made in the Dow Jones would be worth after 10 years with dividends reinvested. 

This comes with the common investing disclaimer of past performance is no guarantee of future results. But Amgen does look poised to build on this track record of outperformance. Here are three reasons why.

1. The drug portfolio and pipeline are equally strong

As you would expect for a $132 billion (by market capitalization) pharmaceutical company, Amgen is well balanced in terms of both its current medicine offerings and potential future medicines in its development pipeline. 

A doctor and patient at an appointment.

Image source: Getty Images.

The drugmaker’s portfolio consisted of nine blockbuster products in 2022 (i.e., at least $1 billion in annual sales) in numerous therapy areas, such as immunology, bone health, and oncology. Double-digit revenue growth in the osteoporosis drug known as Prolia and the cancer drug named Kyprolis helped total revenue to edge 1.3% higher during the year to $26.3 billion. This was despite the high-single-digit revenue decline in the company’s smash-hit immunology drug Enbrel ($4.1 billion in 2022 revenue).

The recent launch of future blockbuster medicines such as the cancer therapy called Lumakras and the asthma treatment co-owned with AstraZeneca (AZN 1.21%) and marketed as Tezspire also bode well for Amgen’s future. Coupled with dozens of compounds such as biosimilars that are currently in clinical trials, this is why analysts believe that Amgen will deliver 5.1% annual earnings growth over the next five years. If anything, this could be a lowball estimate on the part of analysts in my opinion. 

2. Healthy dividend growth can persist

AMGN Dividend Chart

AMGN Dividend data by YCharts

Amgen is an ideal dividend growth stock: The stock’s quarterly dividend per share has more than quadrupled over the last year 10 years. And meaningful growth in the payout should continue moving forward. 

This is because it is projected that the dividend payout ratio will come in under 47% in 2023. That gives the company the capital needed to capitalize on future growth opportunities, repay debt, and repurchase shares. That is why I believe that Amgen will hand out high-single-digit annual dividend hikes to shareholders for at least the next few years. 

And the cherry on top for dividend-oriented investors is that Amgen’s 3.5% dividend yield is much higher than the 2.6% dividend yield of the Dow Jones. Thus, shareholders get the best of both worlds: Above-average dividend growth and above-average starting income. 

3. The stock’s valuation is a good deal

Amgen is a wonderful business. But this doesn’t seem to be priced into the stock at the current $245 share price.

Amgen’s forward price-to-earnings (P/E) ratio of 12.5 is lower than the drug manufacturers’ industry average forward P/E ratio of 13.9. Considering that the company is a proven wealth compounder, this discounted valuation presents an enticing buying opportunity for dividend growth investors looking to also beat the broader market in the years ahead.