Amgen Dividend May Come Next Month as Investors Seek Value From Cash Hoard

Amgen Inc. (AMGN) may introduce its first dividend next month, rewarding investors whose stock in the world’s largest biotechnology company has fallen 33 percent since 2006, even as its cash hoard grew to $17.4 billion.

The move may be announced at an April 21 investor meeting, said Robyn Karnauskas, a Deutsche Bank analyst in New York. The dividend may yield 2.3 percent, with a quarterly payment of 30 cents a share, according to a Bloomberg projection. It would make Amgen, based in Thousand Oaks, California, the first company in the six-member Standard & Poor’s 500 Biotechnology Index to offer such a payout.

Amgen has more cash and short-term investments on hand than any U.S. drugmaker except for Pfizer Inc. (PFE) and Johnson & Johnson (JNJ), each with about $28 billion and quarterly dividend payments. Some shareholders have sought a dividend since reports surfaced in November that Amgen may buy Swiss drugmaker Actelion Ltd. (ATLN) for $9.8 billion, a deal that “troubled investors,” Karnauskas said in an interview.

“Why wait?” said Evan McCulloch, the San Mateo, California-based portfolio manager of Franklin Templeton Investments, Amgen’s ninth-largest shareholder with a 1.6 percent stake as of Dec. 30. “Do it now.”

Bloomberg bases its dividend estimates on seven criteria, including a company’s dividend history and public forecasts.

Annual 4 Percent Yield

McCulloch said he’d like to see a yearly dividend yield of as much as 4 percent, or about $2 a share. Some investors support a dividend as a check on the company’s ability to make large acquisitions that may trim earnings and share prices, he said in a telephone interview.

Amgen rose 58 cents to $53.27 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The shares have fallen from $78.86 on Dec. 30, 2005.

The arrival of Jonathan Peacock, appointed in July as Amgen’s chief financial officer, has fueled Amgen dividend speculation, Karnauskas said. Peacock worked previously at Novartis AG (NOVN), a Basel, Switzerland-based drugmaker that ended last year with $8.1 billion in cash and short-term investments, and pays an annual dividend of 2.20 Swiss francs ($2.43).

Peacock declined to be interviewed. Amgen spokesman David Polk had no comment.

Amgen can afford to return money to shareholders because the company generates a lot of cash compared with its capital expenditures, Geoffrey Meacham, a JPMorgan Securities analyst based in New York, said in a March 3 note. Each 1 percent payout to investors would cost Amgen about $500 million.

Value Stock

A dividend, though, would signal Amgen’s transition from a growth company to a value stock that offers slow growth and predictable earnings, a concession the company may not wish to make, said Mark Oelschlager, a portfolio manager at Oak Associates Ltd., an Akron, Ohio, investment adviser that holds about 640,000 Amgen shares.

“A company is often reluctant to initiate a dividend because it feels to management like they are giving up on growth or they are afraid that investors will no longer view them as capable of growing,” Oelschlager said in an e-mail. “In most cases this is silly, as these companies, Amgen included, have already been recognized by the market as having lower growth prospects than before.”

A dividend announced in April may pay out in June, said Geoffrey Porges, an analyst with Sanford C. Bernstein in New York, in a March 14 report. Amgen may start with a quarterly payout of as much as 32 cents a share, or an annual yield of about 2.4 percent, Porges projected. The annual yield may go up by as much as 9 percent a year, he said.

Lack of Trust

The possibility of a $9.8 billion Actelion deal that would have consumed half of the company’s reserves “stifled interest in the company and blunted the stock rise” that should have emerged when Amgen’s new bone drug denosumab won approval from U.S. regulators the same week, Deutsche Bank’s Karnauskas said.

“There’s not a lot of trust in the management of big pharma and large biotechs,” McCulloch, of Franklin Templeton, said in a telephone interview. “People want to prevent management teams from doing large deals that might destroy value for shareholders.”

Amgen pioneered biological therapies 30 years ago for cancer and kidney-disease patients. Revenue tripled to $12.4 billion over the five years ended in 2005, after the company introduced Aranesp for anemia. Over the next five years, though, annual sales growth slowed to 1.4 percent as the drug was linked to strokes and heart attacks.

Few Deals

Over the past five years, Amgen has announced seven acquisitions worth a combined $1.6 billion, according to Bloomberg data. The largest was its $425 million purchase of BioVex Group Inc. in January.

“They’ve got excess cash and they don’t appear to be in an acquisition mode,” said Michael Cuggino, president of Pacific Heights Asset Management in San Francisco, an investment fund that holds 609,000 Amgen shares. “Distributing a little back to shareholders is not a bad idea.”

Pfizer, based in New York, pays a 20-cent quarterly dividend and New Brunswick, New Jersey-based J&J pays 54 cents.

To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.