- Dividend Growth alone is not enough
- Revenue growth has to keep up with dividend growth
- D/E ratio is important but can be above 1 in a growth stock
- Covered calls reduce cost basis
You could not ask for a more robust dividend growth history. Just over the past 3 years, AMGN has increased the dividend from $.79 in 2015 to $1.32 in 2018. That is an average annual increase of 22.36%. Very impressive.
A dividend growth investor has to like this story. While the dividend yield is competitive with the 10-year U.S. Treasury, the dividend growth is compelling.
Next let's look at the other fundamental criteria I use to evaluate my dividend stocks. This includes earnings per share (EPS) which I always require to be greater than dividend paid out. Other criteria are revenue growth and debt to equity (D/E) ratio.
The issues I have with AMGN are poor revenue growth and high D/E ratio and EPS. EPS is a little out of wack. AMGN took a one-time charge that reduced earnings well below the dividend paid out. However, this is not a permanent situation. Their most recent quarter shows they are back to making more in earnings than they pay out in dividends.
I am much less concerned about D/E ratio because a biotech has to spend a lot of money to create a new drug and get it to market. However, since 2015 revenue growth has been anemic. When revenue growth is anemic the cash needed to fund those big dividend increases can be inadequate.
We income investors are always being warned to not chase yield. Certainly 2.945% is not a great yield and we could not be accused of chasing yield but we could be accused of chasing dividend growth. Without revenue growth, dividend growth is in jeopardy.