As many health-care companies' share prices drop, their dividend yields have become strikingly attractive. Heck, they even turned me from a Pfizer (NYSE:PFE) bear into a bull.

The big question, though, is whether these dividends can hold up. Are the stocks screaming "buy me," or are the dividends headed for the dumpster?

Company

CAPS Rating (5 max)

Yield

TTM free cash flow (FCF) in millions

Percent of FCF spent on dividend

Biovail Corporation (NYSE:BVF)

****

13.7%

$243

99%

Mannatech (NASDAQ:MTEX)

**

7.8%

($9)

N/A

Pfizer

***

6.6%

$14,767

56%

Bristol-Myers Squibb (NYSE:BMY)

****

5.7%

$2,351

100%

GlaxoSmithKline (NYSE:GSK)

****

4.0%

$9,884

58%

Merck (NYSE:MRK)

****

4.2%

$8,112

41%

Eli Lilly (NYSE:LLY)

***

4.0%

$5,410

36%

Source: Motley Fool CAPS and Capital IQ. TTM = trailing 12 months.

Headed for a cut
With negative free cash flow -- its cash from operations over the last 12 months was negative -- it seems that Mannatech will have a hard time keeping up its dividend. I'm not sure if it’s the negative cash flow, or the distaste of multilevel marketing of nutritional products, that have earned Mannatech a two-star CAPS status, but I'm inclined to stay away from Mannatech, high yield or not.

Biovail has actually covered its dividend over the past 12 months, but the future of its dividend doesn't look too bright, with free cash flow falling more than 50% after sales of its successful depression treatment, Wellbutrin XL, started facing generic competition. Its stock price is down almost 20% year to date, so it looks like investors aren't feeling too confident in that yield, either.

On the bubble
Pfizer is only paying out 56% of its free cash flow in dividends, which doesn't sound so bad -- until you realize that Lipitor is generating a lot of that cash, and it's headed for generic competition in 2011. Add the fact that Pfizer's free cash flow doesn't take into account its payments to the small biotech companies that Pfizer uses to restock its pipeline, and that a lot of the cash flow is in foreign currencies -- which might generate a tax hit if repatriated -- and Pfizer's dividend looks a bit iffy a few years from now.

Bristol-Myers did spend all of its free cash flow on dividends over the past year, but it lands on the bubble -- rather than in the "definite cut" category -- because it has plenty of cash and investments on the books. Granted, it could take further hits from auction rate securities, but it would have to take a major blow to deplete the $4 billion of cash it has on its books. Combine that with free cash flow that actually grew 9% over the past year, and the dividend seems safe at least for now.

Probably safe
While Glaxo, Merck, and Lilly have seen their stock price drop for various reasons and to various degrees, all their dividends look fairly safe. While I can't guarantee that their stock prices will return to their previous levels in the immediate future, but at least investors can enjoy a fat dividend while they wait.

Taking the plunge
Finding the perfect dividend stock can be difficult; you've got to find the right mix of current yield and potential future capital growth.

While no dividend is guaranteed, looking at how much of a company's available cash it's returning to investors can give you some idea of how stable its dividend may be. As for the stock price, in previous recessions, pharmaceutical companies have held up pretty well. While they've fared poorly in the beginning of this bear market, a lot of the downturn probably owes to company-specific problems. Companies that can right the ship should see smooth sailing from here.

Glaxo, Pfizer, and Eli Lilly are all Income Investor recommendations. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day trial subscription.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is also a recommendation of the Inside Value newsletter. The Fool has a disclosure policy.