It’s not often one hears the word “dividends” and “biopharma” in the same sentence, except maybe to point out that the two never seem to go hand-in-hand. Yet, there are (rare) exceptions to that norm.
One of those exceptions is PDL Biopharma (PDLI). Incredibly enough, PDLI currently boasts a dividend yield of 6.1%. Better still, PDL Biopharma is apt to keep paying solid dividends for the foreseeable future. Income investors looking to beef up their portfolio’s diversity may want to mull PDLI. Here’s a closer look at the details.
Big Dividends From a Biopharma Stock
PDL Biopharma is so unique that there’s not really a category for it within the investment world. The most relevant analogy would be to describe PDLI as a REIT (real estate investment trust) or an MLP (master limited partnership) for the pharmaceutical world. Though the company doesn’t enjoy the tax benefits of being a REIT, nor does it pass along the tax-filing work required of MLP owners, PDL Biopharma was built from the ground up as a machine that pays out the bulk of its income as dividends.
But how does a biopharma outfit do that? Unlike the most-storied of biotech companies seeking cures for cancer or diabetes — and spending heavily to do so — PDL Biopharma aims to own patents or royalty rights to a portfolio of cost-effective, established (or at least promising), and consistently-marketable therapies. Think harder-hitting drugs than aspirin, but less splashy treatments than blockbuster arthritis drug Humira or the once-highly-touted prostate cancer drug Provenge.
Examples of the treatments currently driving income for PDLI owners include Avastin and Herceptin. Avastin is a therapy for a handful of different cancers where prior treatment has not resulted in an adequate response. Herceptin is a drug used to treat certain forms of breast cancer.
More relevant to potential or current shareholders of PDL Biopharma is how Avastin has consistently produced revenue of more than $600 million per quarter for many, many quarters. Not only is it technically a blockbuster, it’s a cash-cow. Herceptin is also a consistent provider of cash flow, and though its quarterly sales aren’t yet as strong as those of Avastin (less than $500 million per quarter), its revenue is growing at a faster clip. While Herceptin sees its patent cliff approaching and Avastin isn’t too far behind Herceptin on the same patent-expiration road, both will be able to fund dividends for PDLI owners for a few more years.