Dividend Stocks: 2 to Avoid, 1 to Buy

It's been proved time and time again that buying for the long haul outperforms short-term investing. It's also been shown that investing in dividend-paying stocks can produce higher returns than investing in non-dividend-paying stocks. However, not all dividend-paying stocks are created equal. For instance, here are two dividend stocks that I think are worth avoiding and one that I think can be owned for the long haul.

Royalty revenue set to slidePDL Biopharma's 8.2% dividend yield may be enticing, but the revenue backing up those dividend payments is about to drop. That's because the patent protection for PDL's Queen et al. monoclonal antibody patent portfolio is coming to an end.

Over the years, the Queen et al. patents kicked off a steady stream of revenue for PDL. Thanks to patent royalties tied to some of the planet's top-selling drugs, including Roche Holdings'Avastin, PDL pocketed sales of $581 million in 2014.

However, with its long-in-the-tooth patent portfolio unlikely to continue kicking off cash, PDL is turning to a strategy of financing emerging biotech companies to fill the expected gap. That strategy may or may not pan out, and as a result, this dividend stock is just far too risky a bet for me.

Growing uncertaintyMany investors focus on dividend-paying stocks because they're relying on the dividend payments to supplement their income in retirement. If that's the case, then uncertainty surrounding Amgen's future might mean that it's not a good fit for dividend portfolios.

Admittedly, the company isn't facing the same patent expiration sales headwinds that have weighed down some other big pharmaceutical companies, but with high-profile drugs such as Neupogen, Neulastala, and Epogen at risk of losing market share to biosimilar competitors, Amgen's sales could take a hit.

Earlier this month, the FDA approved Novartis'biosimilar of Neupogen, and while biosimilars in other markets have only captured about 30% to 40% market share, most industry watchers think that biosimilars will eventually win away the lion's share of branded sales.

To offset the risk of expiring patents, Amgen has launched its own biosimilars program that has nine biosimilar candidates in development. That program could produce billions of dollars in sales someday -- or it could not.

Amgen could also blunt the risk to sales this August if it wins FDA approval of Repatha, a PCSK9-inhibiting cholesterol drug that many think could have multibillion-dollar blockbuster potential. However, peak sales forecasts are ripe for error, and this drug has yet to win the official FDA go-ahead.

Amgen's potential catalysts might be enough to entice a growth investor to own Amgen, but they may not provide enough justification for dividend investors, especially given that Amgen's 2% dividend yield isn't all that compelling. For that reason, this is a name that I'd hold off for now on owning in income portfolios.

Dominating indicationsBoth PDL and Amgen face risks tied to patent expirations, but that isn't much of a concern for Gilead Sciences .

Gilead Sciences is the globe's market-share leader in HIV medicine and hepatitis C treatment, and its sales have skyrocketed in the past year. Thanks to the FDA approval of its hepatitis C drugs Sovaldi and Harvoni, Gilead Sciences' sales increased by 122% in 2014, and while growth will slow this year, there's still plenty to like about this company.

Across its HIV drugs, Gilead Sciences markets five therapies that are each on pace to eclipse $1 billion in sales in 2015. Its two fastest-growing of these drugs are Stribild and Complera, and those two multidrug, single-tablet therapies boast patent protection until 2029 and 2023, respectively.

Gilead Sciences' Sovaldi and Harvoni should remain cash cows for the foreseeable future, too. Despite AbbViewinning FDA approval for its hepatitis C treatment Viekira Pak in December, Sovaldi and Harvoni should be able to eclipse the $12.4 billion in combined sales that they generated last year again this year.

Gilead Sciences also has the distinction of having just approved its first dividend payment last quarter, a move that indicates that it feels very comfortable that it will continue to kick off plenty of operating cash in the coming years. Since cash on its balance sheet swelled from $2.6 billion exiting 2013 to $11.7 billion exiting 2014, there's plenty of financial firepower here to increase its dividend yield beyond its current 1.7% rate. If so, then buying shares in the company now at a forward P/E of less than 10 would seem to be a savvy move for the long term.

Tying it togetherPatent expiration will remain the biggest risk to dividend-paying stocks in healthcare, and that's particularly true for PDL and Amgen. Both of those companies are taking steps to ensure that sales growth doesn't sputter and put dividend payouts in jeopardy. But neither offers the kind of clarity that most dividend investors require to make them part of an income portfolio. That suggests that a better bet is to own Gilead Sciences. Gilead Sciences' top sellers have plenty of patent protection, and it has a rock-solid balance sheet that could mean its dividend is both safe and likely to grow.

The article Dividend Stocks: 2 to Avoid, 1 to Buy originally appeared on Fool.com.

Todd Campbell owns shares of Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool recommends Gilead Sciences. The Motley Fool owns shares of Gilead Sciences. 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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