Dividend Yield: 7.5%
Float Short (as of July 31 data): 24.3%
Our next stock is a biopharma play, so it’s hardly a surprise that “reliable” doesn’t come to mind. Still, considering the company’s current 7.5% yield, investors might be tempted to ignore the industry’s stigma and pick PDL BioPharma (PDLI) for income.
That’d be a huge mistake.
For one, what started as a 50-cent biannual payout in 2008 has been slashed down to a 15-cent quarterly payout — an overall decrease of 40% annually. But this isn’t a normal income-paying stock, either.
As James Brumley explained earlier this year — in an article titled “4 Tempting Dividends You MUST Resist,” mind you — PDL BioPharma “buys rights to sell revenue-bearing drugs, and passes along a piece of its royalty income to shareholders.”
While that income stream is nice right now — amounting to that hefty 7.5% yield — an important patent is slated to expire in December 2014. It’s called the Queen patent, and covers the company’s top-selling drugs. Unless the company is able to replace those royalties, you can say bye-bye to your sweet divvy.
That patent expiration is likely one reason shorts are circling the stock. Another could be the stock’s market-doubling run since late January that has boosted PDLI shares to around 14% higher than analysts’ median target.