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Readers hoping to buy Amgen Inc. (NASDAQ:AMGN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Accordingly, Amgen investors that purchase the stock on or after the 16th of May will not receive the dividend, which will be paid on the 6th of June.
The company's upcoming dividend is US$2.38 a share, following on from the last 12 months, when the company distributed a total of US$9.52 per share to shareholders. Calculating the last year's worth of payments shows that Amgen has a trailing yield of 3.6% on the current share price of US$265.86. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Our free stock report includes 2 warning signs investors should be aware of before investing in Amgen. Read for free now.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 45% of its free cash flow in the past year.
It's positive to see that Amgen's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
View our latest analysis for Amgen
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that Amgen's earnings are down 3.2% a year over the past five years.