Amgen Inc. (NASDAQ:AMGN) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of March to $2.38. Based on this payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.

See our latest analysis for Amgen

Amgen's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, the company's dividend was higher than its profits, and made up 81% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Over the next year, EPS is forecast to expand by 98.2%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 65% which would be quite comfortable going to take the dividend forward.

Amgen Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was $2.44, compared to the most recent full-year payment of $9.52. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Amgen has seen earnings per share falling at 9.7% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Amgen's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Amgen's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Amgen (1 is a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.