Friday, March 2, 2018

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

  Revenue / EPS Summary *  
 Fiscal Quarter 2017
(Fiscal Year)
(Fiscal Year)
(Fiscal Year)
   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 1 0.79
   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 1 0.79
   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 1 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 1
   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