It's no secret that Pfizer (NYSE:PFE) has been gearing up for a possible split for several years now. And, in its most recent efforts to this effect, the drugmaker has already split its operating model into two distinct businesses: Pfizer Innovative Health and Pfizer Essential Health. 

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Over the last few months, Pfizer's Innovative Health segment has made major strides toward becoming a viable stand-alone operation with the acquisitions of Anacor Pharmaceuticals for its boron-based drug development platform, as well as Medivation (NASDAQ:MDVN) for its oncology assets (particularly the prostate cancer drug Xtandi). As a result, this business now sports a host of strong growth products, including the breast cancer drug Ibrance, the blood thinner Eliquis that's co-owned with Bristol-Myers Squibb, the epilepsy/pain medicine Lyrica, and others. 

On the Essential Health front, Pfizer is finally close to posting stable revenue following the loss of exclusivity for several former blockbusters like the painkiller Celebrex. And, the drugmaker believes last year's acquisition of the biosimilar and sterile injectable drug company Hospira could help this unit to post modest single- to mid-digit growth going forward. 

So, with both units starting to take shape, Pfizer is reportedly going to make a call on the long-awaited separation decision by year's end. One possible negative offshoot, though, is that a split could negatively impact the drugmaker's shareholder rewards programs, especially its top-notch dividend yield of 3.45% at current levels. Here's why.

Pfizer's dividend may not be sustainable in a post-split environment

With a payout ratio dangerously close to 100%, Pfizer's fairly strong free cash flows and moderate growth levels as a combined entity can apparently barely support its rich dividend payout at current levels. Complicating matters further, the drugmaker has now spent over $36 billion in acquisitions to reach the point where a split is even feasible, reducing its U.S. cash reserves by a significant sum (exact figures will report later this year once the Medivation deal closes).

Even so, some analysts still think that Pfizer may have to perform yet another large acquisition -- such as buying Bristol-Myers Squibb to bolster its immuno-oncology franchise and consolidate its Eliquis revenues -- to make a split a real possibility.

In other words, the drugmaker may have to dig deeper into its cash reserves, and possibly take on further debt, to execute a split. That's not particularly good news from a balance sheet perspective, especially since Pfizer's debt-to-equity ratio already stands at 70%, implying that the drugmaker has been aggressively financing its growth by taking on debt. 

The bottom line is that a split may necessitate additional expenditures that could very well trigger a substantial dividend reduction. After all, Pfizer saw fit to slash its dividend following the $68 billion buyout of Wyeth in 2009, largely because it was forced to take on $22.5 billion in debt to push the deal through.

Pfizer's next target, after all, could be a big one. Bristol's current market cap, for instance, is nearly $95 billion, and Pfizer has already tried to haul in similarly sized targets such as Allergan and AstraZeneca in the recent past -- meaning that a megablockbuster deal certainly isn't out of the question.    

What's next?

The good news for investors that own Pfizer primarily for its dividend is that management hasn't made any concrete decisions on splitting just yet. And given the current political environment that has kept the drugmaker from performing a so-called "tax inversion" to lower its effective tax rate, Pfizer may indeed kick the can down the road on a megablockbuster deal that some feel is necessary to make a break-up worthwhile. Nevertheless, a split and a dividend reduction do appear to be coupled from a balance sheet standpoint, making it a key issue for income investors to keep an eye on going forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.