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The Valeant Pharmaceuticals International (NYSE: VRX) fallout appears far from over. Shares of the drug company are now down 70% in just three months amidst allegations that it used a specialty pharmacy to inflate sales through phony customer accounts.
This high-flying pharma stock has made a mess of the biotech industry of late. Ultimately, stock prices of many drug companies have been taken to the woodshed thanks to concerns over what issues with Valeant mean for the rest of the industry.
It’s been a volatile time for biotech investors. One bright spot has been dividend stocks, which help provide some stability. However, finding dividends in biotech can be hard.
Nonetheless, they do exist and they’re worth finding if you want to take advantage of the still growing biotech industry.
In terms of stability, take the SPDR S&P Dividend ETF (NYSEArca: SDY), which tracks the S&P High Yield Dividend Aristocrats Index. The beta on the fund is 0.8, meaning for every $1 the S&P 500 falls, the dividend ETF should theoretically only fall 80 cents.
So if you’re looking to avoid the Valeant volatility, look no further than the large-cap biotech dividend stocks:
No. 1 Biotech Dividend Stock to Own: Gilead Sciences (NASDAQ: GILD)
Last month, I talked about Gilead being the best biotech stock in the industry. It’s paying a 1.6% dividend yield and posted strong quarterly results in October. The company has $25 billion in cash, which could be used to make a key acquisition, buy back stock or boost its dividend.
Gilead has a new drug that it just submitted to the Food and Drug Administration for treating another version of hepatitis C. It also launched its first cancer drug last year.
The beauty of Gilead is its lean sales force and streamlined manufacturing process. Along those lines, Gilead enjoys industry leading net profit margins (over 50%) and returns on invested capital (upward of 45%).
No. 2 Biotech Dividend Stock to Own: Amgen (NASDAQ: AMGN)
Amgen is another large cap pharma stock that’s been left out in the cold. Its stock is down 6% over the last three months. Meanwhile, its dividend yield is close to 2%.
The fear with Amgen goes beyond Valeant and includes competition from biosimilars for its biologic-related revenues. As I noted in September, Amgen is a company that’s already developing its own biosimilars.
The company also recently posted strong third quarter earnings and has a pipeline of kidney and cancer drugs to help diversify its revenues away from biosimilars. It’s set to become a cash flow generating machine. With the help of massive cost cuts, it plans to start converting over 30% of its sales into free cash flow.
No. 3 Biotech Dividend Stock to Own: AbbVie (NYSE: ABBV)
AbbVie has been good to investors over the past couple years. I profiled the company in March 2014, when it was a dividend-paying spinoff – a rarity that has outperformed as expected.
After the Valeant turmoil and recent concerns over competition for its top drug, Humira, the name is becoming interesting again. It offers a 3.25% dividend yield and has fallen close to 10% over the last three months.
But the worry of competition from biosimilars might be overblown. Humira is a high-margin drug and should support the company’s cash flows as it builds up its drug portfolio with new cancer drugs. As well, there’s the opportunity to expand Humira into other markets, such as Crohn’s disease and rheumatoid arthritis.
AbbVie recently said it expects to earn over $35 billion in sales by 2020, with over half coming from Humira. Compare that to the $20 billion-$25 billion it’s generating now.
In the end, getting mixed up with Valeant appears to a fool’s errand. Rather, investors can still find safe ways to invest in the hot biotech space. The key is to stick to the large caps with strong cash flow that are paying investors dividends.
Of course, there are many opportunities outside the biotech sector for investors looking for growing dividends. You’ll find 10 of the very best right here.