Amgen, Inc. (AMGN): The Only True Biotech Dividend Stock

Dividend stocks are hard to come by in the biotech space. There are plenty of pharmas that offer dividends, but finding a biotech stock that offers a dividend is a bit challenging.

The one and only
In fact, there’s really only one biotech dividend stock: Amgen, Inc. (NASDAQ:AMGN). The company started offering a dividend in 2011, so it doesn’t exactly have a long history of offering a dividend. Even so, it seems like Amgen, Inc. (NASDAQ:AMGN) is fully committed to being a dividend stock; it raised its dividend in 2012 and again this year. The dividend now sits at $1.90 per share, 68% higher than where it started in 2011.

At a yield of just 1.9%, you’re not going to be buying Amgen solely for its dividend; it’ll take some capital appreciation to justify owning the dividend stock. Still, it’s a nice payout when growth is hard to come by.

Why the other big biotechs aren’t dividend stocks
True confession: I started this article with a plan to argue that the other three big biotechs — Biogen Idec Inc. (NASDAQ:BIIB), Celgene Corporation (NASDAQ:CELG), and Gilead Sciences, Inc. (NASDAQ:GILD) — should also offer a dividend.

Then I made the following chart.

Company	Free Cash Flow TTM (in millions)	FCF/P
Biogen Idec	$1,631	3.4%
Celgene	$1,933	4%
Gilead	$3,001	4%
Amgen	$5,256	7.3%

Source: S&P Capital IQ. TTM = trailing 12 months, FCF = free cash flow, P = price.

The second column is essentially what the dividend yield could be if the company spent all of its free cash flow on a dividend. No company would do that, but it shows how little of its free cash flow Amgen, Inc. (NASDAQ:AMGN) is using on its dividend. If the other three wanted to be dividend stocks with yields of 2%, they’d have to dedicate half or more of their free cash flow.

That clearly wouldn’t be a good idea. Companies need that cash to license drugs and make acquisitions to supplement the pipeline; internal R&D can only take companies so far.

Priced for growth
Amgen, Inc. (NASDAQ:AMGN) is different from the other three large biotechs because investors have given up expecting massive growth from the company. Biogen Idec Inc. (NASDAQ:BIIB), Celgene Corporation (NASDAQ:CELG), and Gilead Sciences, Inc. (NASDAQ:GILD) are still being priced like they have substantial growth left. It doesn’t make sense for them to become dividend stocks until investors are pricing them like a slow-growth pharma.

The obvious compromise is for companies to repurchase shares, which give the biotech companies a little more freedom with their free cash flow than dividends that investors would come to expect. If more M&A opportunities arise, companies can cut back on purchases accordingly.