G

Source: Gilead Sciences.

I'm surprised by Gilead Sciences' (NASDAQ:GILD) decision to join the very limited ranks of biotechnology dividend-paying companies. I previously considered the potential that the company would issue a dividend, but I concluded that the company was more likely to plow its ever-increasing cash stockpile back into R&D, or into an acquisition, rather than line investors' pockets.

Since Gilead's decision to pay a dividend reduces the amount of money it will have available to spend on research or to orchestrate M&A, let's see whether investors should be happy about the company's choice.

Few and far between
Before Gilead joined the dividend-paying ranks, dividend investors looking for biotech exposure were pretty much relegated to investing in Amgen (NASDAQ:AMGN), because the only other notable dividend-paying biotechnology company, PDL Biopharma, pays its dividend courtesy of royalty streams from legacy licensing deals and has no ongoing drugs under development.

As a result, Gilead's decision to pay a $0.43 quarterly dividend makes it one of two pure-play biotech stocks that I would consider to be investment-worthy.

Mounds and mounds of cash
Many people scoffed at Gilead's decision to fork over $11 billion to acquire Pharmasset in 2012 to get its hands on Sovaldi, the massively successful backbone of Gilead's hepatitis C franchise. However, few would question that decision today.

After winning FDA approval in December 2013, Sovaldi found that its ability to offer a functional cure to thousands of hepatitis C patients across all genotypes led it to generate an astounding $10.28 billion in sales in 2014. Moreover, Gilead's ability to combine Sovaldi with ledipasvir to create Harvoni, a second-generation hepatitis C drug for the treatment of genotype 1 patients that won FDA approval in October, contributed an additional $2.12 billion in sales during its first quarter on the market.

Overall, those two drugs combined to add $12.3 billion in entirely new revenue for Gilead last year, resulting in a 127% year-over-year sales surge for the company to $24.5 billion in 2014.

The significant success of these two drugs has given a tremendous lift to Gilead's profitability. The company's net income reached $3.5 billion in the fourth quarter, up from $791 million the year before. Full-year net income was an equally impressive $12.1 billion last year, up significantly from the $3.1 billion in net income reported for 2013. As a result, Gilead exited the fourth quarter with $11.7 billion in cash and marketable securities, up from $2.6 billion a year ago.

Looking ahead
Whether or not investors will ultimately applaud Gilead's decision to issue a dividend isn't certain, but using Amgen as a proxy would suggest that returning money to investors through a dividend won't derail Gilead's R&D program, or the performance of its shares.

Since instituting its dividend payout policy in 2011, Amgen has increased its dividend payment from $0.28 per quarter to $0.79. At the same time, Amgen's share price has climbed from less than $60 per share to more than $150, even as trailing-12-month research-and-development spending has grown from less than $3 billion to nearly $4.3 billion.

AMGN Dividends Paid (TTM) Chart

Amgen's success suggests that investors shouldn't be too nervous that Gilead's decision to pay a dividend is a signal that the company's future is somehow less bright.

Since Gilead's drug pipeline is chock-full of next-generation HIV, hepatitis C, and oncology treatments, investors may find that the dividend payout is just one more reason to want to own the company. That could prove to be particularly true if Gilead takes a page out of Amgen's book and steadily increases its dividend payout in the future.

Todd Campbell owns shares of Gilead Sciences. Yes. Todd still owns Gilead Sciences. Todd also owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Legal beagles won't let me ask them or let them tell me. 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.