Does PDL BioPharma Inc. (PDLI)’s Dividend Have Room to Soar?

Valuation
Not all dividends are created equal. At first glance a high dividend yield may look nice, but all too often it means a problem is lurking around the corner for a business. Looking at PDL BioPharma Inc. (NASDAQ:PDLI)’s 8.4% dividend yield in isolation only tells part of the story, which is why investors need to have an understanding of how the market perceives a company prior to buying a stock. We can do this by comparing a few financial multiples, like price to earnings, to its peers in the industry.

Future growth
Up to this point, we’ve looked at PDL BioPharma’s dividend in the past, and we’ve also seen how its stock is being perceived by the market today. However, the most important factor to consider when understanding a dividend’s future is where the company’s cash flow is heading. It’s hard to generate more cash without growing sales, so let’s take a look at what industry analysts are expecting for PDL BioPharma’s revenue growth relative to peers this year.

Foolish bottom line
Don’t let PDL BioPharma Inc. (NASDAQ:PDLI)’s falling payout ratio, seemingly cheap valuation, and above average revenue growth fool you — this is a dividend whose days are truly numbered.

That’s because the company’s revenue relies on royalties from its antibody humanization technology, and all of the patents for that technology expire by the end of 2014. If the company doesn’t find another avenue for growth, management could wind down operations and return all excess cash to shareholders sometime around 2016. That would make for a nice final dividend — and a worthless stock.

The article Does PDL BioPharma’s Dividend Have Room to Soar? originally appeared on Fool.com.

Brenton Flynn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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