Can Amgen Stock Keep Trouncing the S&P 500?

Few stocks consistently outperform the vaunted S&P 500 index due to its inherent advantages in diversification and stability. This benchmark index draws its strength from a broad portfolio of America's top companies, allowing it to weather individual sector downturns and capitalize on various market trends simultaneously.

Individual stocks, in contrast, are subject to company-specific risks and industry cycles. Even well-managed companies can face periods of underperformance due to factors such as changing consumer preferences, technological disruptions, or economic shifts that disproportionately affect their sectors.

A laboratory.

Biotech pioneer Amgen (NASDAQ: AMGN) has been one of the few exceptions to this trend. The company's shares have not only crushed the S&P 500 since their public debut nearly 40 years ago, but have markedly outperformed the benchmark index over the prior 12 months.

AMGN Total Return Level

Can Amgen keep trouncing the S&P 500? I'll break down its core value proposition and risk profile to find out.

Amgen's shares are still cheap, especially for a top dividend stock

Despite its stately 45% jump over the past 12 months, Amgen's shares only trade at 16.6 times forward earnings. That's a sharp contrast to the 22.6 multiple of the S&P 500.

What's powering Amgen's stock of late? The biotech has enjoyed a bevy of strong commercial launches in recent years, such as its cholesterol-lowering medication Repatha and asthma drug Tezspire.

Moreover, investors are excited about the company's midstage weight loss candidate MariTide. Despite stiff competition from Eli Lilly and Novo Nordisk, the drug is forecast to hit $8 billion in sales by 2033, according to Morningstar analyst Karen Andersen, CFA.

That's a testament to the sheer size of this particular drug market. Goldman Sachs, for instance, has modeled 2030 sales for the category at over $100 billion, making obesity one of the largest drug markets of all time. Amgen appears in prime position to ride this wave higher in the coming years.

In addition to its potent innovation engine, Amgen offers a top-tier dividend program. At current levels, the drugmaker pays an annualized yield of 2.82%, which is considerably higher than the 1.35% average of stocks listed on the S&P 500 index.

Moreover, Amgen has raised its dividend by nearly 10% per year over the past five years. That figure puts the biotech near the top of all dividend growth stocks from a rate-increase standpoint.

AMGN Dividend Growth (Annual)

Still, there are important risks to consider. Amgen's payout ratio is concerning at 123%, and its top-line growth is projected to fall to around 3% next year.

Verdict

Amgen has a long history of delivering above-market returns on capital. While past performance is no guarantee of future success, Amgen's culture of innovation suggests that its stock should maintain its forward momentum in the years ahead.

With its shares trading in bargain territory and its dividend yield hovering around a mouthwatering 3%, the biotech's stock stands out as top buy right now.

Should you invest $1,000 in Amgen right now?

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Amgen and Novo Nordisk. The Motley Fool has a disclosure policy.