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7 High-Dividend Stocks in Healthcare

Source: PDL BioPharma.

However, just because PDL has low costs in no way makes it a safe investment. PDL is wholly dependent on its royalty stream, and its management team has previously mentioned that if it's unable to replace its royalty revenue with new products in the future, it may be best to wind down its business. With its Queen patents expiring in Dec. 2014, and some lag time between its last royalty payments for these patents of around a year, PDL's revenue could fall by 60% or more in 2016. If anything, it seems probable that PDL BioPharma may need to reduce its dividend payout in the near future.

The same might be said for royalty company Theravance, which I believe committed the ultimate no-no in 2014 when it borrowed $450 million at a whopping 9% interest through 2018 in order to assist in financing a $0.25/quarter dividend.

Expected to support Theravance's hefty payout are its co-developed LAMA/LABA COPD and asthma drug hopefuls Breo Ellipta, Anoro Ellipta, Incruse Ellipta, and Arnuity Ellipta. Unfortunately, the drug launch for Breo and Anoro has been less than stellar, whisking away hopes of quick profitability for Theravance. More worrisome is Theravance's remaining $725.6 million in debt and its looming debt payment in a few years. I have a suspicion that this dividend may not hold over the long run.

Source: GlaxoSmithKline, Facebook.

Even established Big Pharma stocks aren't immune from dividend challenges. GlaxoSmithKline's workhorse drug is long-term asthma and COPD therapy Advair/Seretide, which delivered $6.3 billion in sales last year, down 15% year over year. Advair actually lost its patent protection years ago, but generic therapies aren't set to hit the market until 2016. Once they do, though, GlaxoSmithKline could be facing a huge profit decline and may need to cut its dividend payout.

High-dividend stocks in healthcare you can trust

The good news is there are high-dividend healthcare stocks you can trust -- you just have to be picky with what you buy.

AbbVie, for instance, is doing a good job of shoring up its pipeline in lieu of an eventual patent loss for anti-inflammatory Humira, the current best-selling drug in the world, later this decade.

Topping the list of its recent moves is its $21 billion purchase of Pharmacyclics , the co-developer of Imbruvica, a blood cancer drug that's already been approved in three indications, including mantle cell lymphoma and chronic lymphocytic leukemia (the most common blood cancer in adults), and is being tested in countless additional trials for both blood-borne and solid tumors. Peak sales estimates for Imbruvica on Wall Street have regularly ranged between $5 billion and $9 billion, with AbbVie now getting its slice of this revenue along with Pharmacyclics' development partner Johnson & Johnson .

It still might be a little early to suggest AbbVie's high-yield dividend can hold up just fine, but it's certainly making good inroads toward ensuring its dividend remains superior to its many of its peers.

Source: Flickr user Lindsey Turner.

Small-cap PetMed Express is another name I believe you can trust. Even though direct-to-consumer animal pharmaceutical sales haven't taken off as quickly as expected, the company's high single-digit profit margin, $52.7 million in cash and cash equivalents with no debt, and 74% payout ratio based on its projected 2015 EPS, give it some breathing room to maintain its payout. If anything, I'd cautiously speculate that PetMed Express' enterprise value of $278 million is cheap enough to potentially attract buyout interest down the road.

In the end, there are great dividend stocks to choose from in the healthcare sector, you just have to be willing to look beyond their yields to determine if the business model has the substance needed to maintain that payout (or grow it) over the long run.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of, and recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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