Amgen vs. Gilead Sciences: Which Biotech Dividend Stock Is the Better Buy?
Key Points
Amgen and Gilead pay forward dividend yields above 2%.
Gilead has a lower dividend payout ratio, but Amgen is generating stronger sales growth.
The better pick between these two biotech stocks depends on which factors you prioritize the most.
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Stocks in some sectors and industries are known for paying dividends. Consumer staples, energy, and utility stocks are great examples. However, the biotech industry isn't in the group. Most biotech companies are small and can't afford to pay dividends.
Amgen (NASDAQ: AMGN) and Gilead Sciences (NASDAQ: GILD) are notable exceptions. Both of these big biotech stocks offer attractive dividends. Both also have very different strategies for navigating the next decade of drug development. Which dividend-paying biotech stock is the better buy for long-term investors now?
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How Amgen and Gilead compare
The first way most investors compare two dividend stocks is to look at their yields. Amgen has an edge on this front. Its forward dividend yield tops 2.2%, while Gilead Sciences' yield is slightly below 2.1%.
Investors also typically examine companies' dividend payout ratios, which measure the percentage of earnings paid out as dividends. The lower the ratio, the better. In this case, Gilead wins with a dividend payout ratio of 43.5% compared with Amgen's 60.9%.
Valuation matters to income investors, too. Again, Gilead gets the nod in this category. The biotech stock trades at 15.6 times forward earnings, while Amgen's forward earnings multiple is 16.7.
A more difficult factor to analyze is how well-positioned each company is to continue paying dividends in the years to come. There isn't a metric you can look up online for this. Instead, investors must research the current product lineups, competitive dynamics, and pipeline programs of Amgen and Gilead Sciences.
Amgen's current lineup is arguably slightly stronger than Gilead's. The giant biotech's product sales increased by 9% year over year in its latest quarter, compared to 8% growth for Gilead Sciences. Amgen's revenue is also somewhat more diversified than Gilead's, with 17 drugs on track to be blockbusters this year versus eight for Gilead.
However, the picture isn't quite as clear-cut regarding the two drugmakers' pipelines. Amgen's pipeline features 44 programs, 29 of which are in late-stage development. Gilead believes it has the most robust launch pipeline in the company's history, with 53 clinical-stage programs. But only 15 are in Phase 3 clinical studies.
Better biotech dividend stock
Returning to our original question, which of these two biotech dividend stocks is the better pick? I think it depends on which type of income investor you are.
For income investors focused on yield and growth, Amgen appears to be the better choice. Its yield is higher. The company also seems to hold an advantage over Gilead with its product lineup and late-stage pipeline.
On the other hand, income investors who prioritize safety above all else might prefer Gilead Sciences. Its payout ratio is well below Amgen's. Investors who emphasize value will probably also prefer Gilead.
The best answer for many investors, though, could be to simply own both stocks. Amgen and Gilead each offer much higher dividend yields than the S&P 500 (SNPINDEX: ^GSPC) and have more attractive valuations.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amgen and Gilead Sciences. The Motley Fool has a disclosure policy.
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