Stock selection is everything in investing. While thousands of publicly traded companies exist, not all of them are worth investing your hard-earned money in.
One of the more objective measures of investment quality is a strong track record of dividend growth. This is because sustained dividend increases are only possible with the corresponding earnings growth to support them. Below are two healthcare sector dividend payers that have achieved remarkable dividend growth over the past decade.
Amgen: A Diversified Pharmaceutical Business
Generating $26.3 billion in revenue in 2022, Amgen (NASDAQ: AMGN) is one of the world’s largest pharmaceutical companies. As expected from such a massive California-based drug company, Amgen has a well-balanced revenue stream.
The company boasts a portfolio of nine blockbuster drugs, led by its immunotherapy drug Enbrel, which generated $4.1 billion in revenue in 2022. Thanks to this impressive product lineup, Amgen has managed to significantly increase its dividend over the past decade. Its quarterly dividend has grown more than fourfold, from $0.47 per share in 2013 to $2.13 per share today.
There are plenty of reasons to believe that Amgen’s management can continue its rapid dividend growth.
- First, Amgen recently launched Amjevita, a biosimilar to AbbVie’s blockbuster drug Humira, which could generate nearly $1 billion in annual revenue.
- Second, new drugs such as Lumakras (a lung cancer treatment) and Tezspire (an asthma treatment co-developed with AstraZeneca) could also become blockbusters.
- Additionally, Amgen has dozens of other compounds in various stages of clinical trials. These factors explain why analysts believe Amgen’s earnings will grow at a mid-single-digit annual rate over the next five years—a projection that may actually be conservative.
Finally, Amgen’s dividend payout ratio is expected to be 48% in 2023, leaving ample cash for acquisitions, debt repayment, and share buybacks. It would be surprising if Amgen does not deliver high single-digit annual dividend increases in the mid-term. The stock already offers a 3.5% dividend yield, more than double the S&P 500’s 1.6% yield.
Moreover, Amgen trades at a forward price-to-earnings (P/E) ratio of 12.9, which is slightly cheaper than the pharmaceutical industry’s average forward P/E of 13.6. Simply put, Amgen remains an attractive choice for long-term dividend growth investors.
LeMaitre Vascular: Specialization Pays Off
Berkshire Hathaway CEO Warren Buffett is well-known for his concept of the “circle of competence.” The idea is simple: know what you’re good at and stick to it. While Buffett often applies this principle to investing, it’s equally critical for company management to achieve success while minimizing failures.
Few companies exemplify this principle better than LeMaitre Vascular (NASDAQ: LMAT). LeMaitre focuses exclusively on the peripheral vascular disease medical device market, and its specialization has paid off. The company holds the No. 1 or No. 2 market share in nine out of twelve product categories, including vascular grafts, carotid shunts, and occlusion catheters.
Thanks to its niche market leadership, LeMaitre’s management has increased its quarterly dividend per share from $0.03 in 2013 to $0.14 today. This rapid dividend growth more than compensates for its low starting yield of 1.1%.
Looking ahead, LeMaitre’s products will likely see strong demand due to rising global physical inactivity rates. Combined with acquisitions and new product launches, this should drive solid revenue growth in the coming years. Additionally, with a projected payout ratio of approximately 48% in 2023, the company is well-positioned to continue impressive dividend growth.
Most importantly, LeMaitre looks attractively priced at its current stock price of $51. Its Shiller P/E ratio of 59.9 is significantly lower than its 10-year average of 91.2. The Shiller P/E ratio adjusts a company’s earnings for inflation over the past decade, providing a more accurate valuation measure.
This valuation helps explain why analysts have set an average 12-month target price of $58 per share, which is 13% higher than the current price.
