M* Money Madam : AMGN defies the trend

Amgen, symbol, AMGN has been in my portfolio for a while. I most recently added in November of 2017. I have sold calls on my position many times and today is another example of this strategy.

AMGN has history of EPS greater than Dividends paid out
D/E ratio is a bit high
Dividend on par with 10 year Treasury
Covered Call options enhance income

First, lets look at AMGN's fundamentals.

On first blush AMGN would not pass my criteria test because EPS of $2.57 are much less than dividends paid out of $5.28. However, this is an aberration. AMGN took a big write-off in the 4th quarter of 2017. Without that write-off AMGN has consistently produced earnings in excess of dividends paid out and this is one of the "moats" that I use to quell my nerves.

The table below is courtesy of Nasdaq.com

Revenue / EPS Summary *

Fiscal Quarter

2017
(Fiscal Year)

2016
(Fiscal Year)

2015
(Fiscal Year)

March

Revenue

$5,464(m)

$5,527(m)

$5,033(m)

EPS

2.79 (3/31/2017)

2.5 (3/31/2016)

2.11 (3/31/2015)

Dividends

1.15

0.79

June

Revenue

$5,810(m)

$5,688(m)

$5,370(m)

EPS

2.92 (6/30/2017)

2.47 (6/30/2016)

2.15 (6/30/2015)

Dividends

1.15

0.79

September

Revenue

$5,773(m)

$5,811(m)

$5,723(m)

EPS

2.75 (9/30/2017)

2.66 (9/30/2016)

2.44 (9/30/2015)

Dividends

1.15

0.79

December (FYE)

Revenue

$5,802(m)

$5,965(m)

$5,536(m)

EPS

-5.77 (12/31/2017)

2.61 (12/31/2016)

2.36 (12/31/2015)

Dividends

1.32

1.15

Totals

Revenue

$22,849(m)

$22,991(m)

$21,662(m)

EPS

2.69

10.24

9.06

Dividends

4.77

4.15

3.37

Previous 3 Years

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AMGN yields 2.8% which is pretty close to the 10 year U.S. Treasury. I need more income than a 10 year treasury or I would buy the more safe treasury.

AMGN carries a debt to equity ratio (D/E) of 1.158. My rule for D/E ratio is less than one or within industry standard. A good comparison is Gilead (GILD) which carries a D/E ratio of 1.395 making AMGN's D/E respectable. MSN Money calculates industry D/E average of .90 making AMGN's D/E ratio just a bit high. If AMGN has a weakness it is this slightly elevated D/E ratio.

Two catalysts make me want to hold onto AMGN.

Annual Dividend raises: over 20% since 2015
Covered Call options: add 1.13% to yield.

Today AMGN is one a few stocks in my personal portfolios that is up. Moreover, a very nice call is available. See the details in the table presented below.

I am not adding to AMGN at this time, I am however, working my portfolio for income on a stock that I feel has a good "moat" of safety. The call expiration is only 49 days away. While a call does limit upside potential, it also can limit my ability to unload AMGN should something go terribly wrong. This is why I chose an expiration date less than 2 months. If you go out further, you could capture the dividend in May, however, AMGN did not have any May calls available and I did not want to go out as far as June.

M* MoneyMadam