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Source: Wikimedia Commons.

Dividend stocks are a must-own for any serious investor. After all, they can greatly amplify gains over the long term when used to purchase additional shares through dividend reinvestment programs, or simply generate passive sources of income.

Choosing the right dividend stocks for your portfolio, however, is no easy task. In the healthcare sector, for example, the ongoing patent cliff, and its counterpart, the "innovation boom," have radically transformed many of the sector's biggest names. With this in mind, let's consider how two of the sector's favorite names among income investors, Bristol-Myers Squibb (NYSE:BMY) and Merck & Co. (NYSE:MRK), currently stack up after their major reorganization efforts in the past few years. 

Bristol offers a stable yield and decent long-term growth prospects
At current levels, Bristol pays a relatively pedestrian dividend yield of 2.25%, roughly in line with the sector average at the moment. The company has slightly raised its dividend about once a year for the past six years, but most of its cash has really gone into developing its clinical pipeline of late, especially in immuno-oncology, where it's emerging as an early leader.  

So it's unsurprising that the big pharma exited the second quarter of 2015 with a mere $2.7 billion in net cash. Bristol probably won't be adding much to its war chest anytime soon because of rising costs for the marketing of new products and its significant investment in immuno-oncology. In fact, management expects these two areas to continue to see a low-single-digit rise in costs for the foreseeable future. 

The good news is that Bristol's flagship immuno-therapy, Opdivo, has been burning it up on the regulatory front with a second approval in lung cancer, causing its sales to jump to $122 million in the second quarter, up from only $40 million in the preceding quarter. With Opdivo's pivotal kidney cancer trial being stopped early for efficacy last month, it'll probably garner yet another approval within the next six months, further adding to this strong sales momentum. 

Eliquis

Source: Pfizer.

Sales of Bristol's and Pfizer's next-generation blood-thinner, Eliquis, also jumped 23% to $437 million from the prior quarter because of strong growth in both the U.S. and international markets. This drug is thus expected to be one of Bristol's main revenue drivers in the years to come. 

Despite these bright spots emanating from its next generation of pharma products, Bristol is facing a couple of worrisome headwinds moving forward. First off, its hep-C franchise has been markedly outperforming the Street's expectations thus far, with a noteworthy $479 million in second-quarter sales, but this revenue may evaporate overnight as Gilead Sciences moves into Bristol's main bastion of strength -- Japan.

Next up, Bristol's "other" cancer immuno-therapy, Yervoy, is having a rough go of it since the introduction of PD-1 inhibitors such as Opdvio in the U.S. market. Specifically, the drug's U.S. sales slipped by 21% from a year ago to $136 million in the second quarter. With a host of new PD-1 and PD-L1 inhibitors barreling toward the oncology market, it's unclear whether Yervoy will ever be a growth product again. 

Merck's cash flows are getting clobbered from a strong dollar and heavy M&A activity
Merck's dividend yield is higher than Bristol's at 3.05%, with the company typically raising its payout about once a year over the past four years. However, there is some concern that its payout will remain stagnant for the next several quarters, following its bevy of M&A activity that saw the company buy both Idenix Pharmaceuticals and Cubist Pharmaceuticals in the past 12 months. Meanwhile, the headwinds of a strong dollar helped to drive total pharma sales to $8.6 billion, down 6% from a year ago in the second quarter. These negative impacts on Merck's bottom line were partially offset, though, in the second quarter by an 8% reduction in marketing and administrative costs. 

Merck also has a mountain of cash on its balance sheet (about $8 billion) that could theoretically be used to support a dividend increase. But it's important to bear in mind that the bulk of it is in offshore accounts, meaning the drugmaker would probably be hit with a substantial tax bill if it repatriated these assets to reward shareholders. 

Cubicin

Source: Cubist.

On the product side, Merck's future hinges on a few key areas. With the drugmaker experiencing huge sales declines for former top drugs such as Remicade, Zetia/Vytorin, and Isentress in recent quarters, its newer products, such as Opdvio's counterpart Keytruda, and the Cubist portfolio of next-gen antibacterial products, need to pick up the slack.

And so far they're doing an admirable job. Keytruda's second-quarter sales, for instance, jumped to $110 million, up from $83 million in the prior quarter. Cubist's flagship gram-positive antibacterial Cubicin also brought in a noteworthy $293 million in sales during the three-month period.

The downside is that Merck has identified hepatitis C as one of its main areas of growth in the coming years, driven in part by its $4 billion investment in Idenix. The problem is that Gilead has clearly shown that it can repel would-be competitors, and its clinical pipeline looks more than adequate to defend against Merck's upcoming offerings in this space.  

Which stock is the better long-term buy?
A head-to-head comparison of these pharma giants shows that both companies should be able to support their dividends for the long haul, but neither is expected to raise its dividend in the near term because of their efforts to reorganize in the wake of the patent cliff. So neither company gains an edge in that area.

A deeper look at their key target areas for growth is therefore perhaps the best way to differentiate between these pharma stalwarts. Bristol has identified immuno-oncology as its primary therapeutic area, building one of the deepest pipelines in the process. Merck, on the other hand, is taking a more diversified approach, pushing further into immuno-oncology, hep-C, acute hospital care via the Cubist transaction, and of course, vaccines.

Given that antibacterials generally don't have a long shelf life commercially and vaccines are low-margin products, Merck's real growth drivers could be immuno-oncology and hep-C. The problem is that Bristol is poised to eventually overtake Merck in immuno-oncology, and there's no guarantee that Merck can successfully compete in hep-C. That's why Bristol appears to be the better buy of the two for investors looking for sustainable growth and income. 

George Budwell owns shares of Gilead Sciences, which is also owned by and recommended by The Motley Fool. 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.