Investing in dividend stocks based on high yields alone is not always a wise move. It’s only worth placing your money in companies with substantial yields if they are capable of supporting their payouts. As we recently witnessed, even robust income stocks with significant yields can resort to cutting their dividends; this is exactly what happened with Walgreens Boots Alliance and Medical Properties Trust.
However, not all high-yield stocks are doomed to the same fate. One such example is Pfizer (NYSE: PFE). Despite encountering some recent hurdles, the pharmaceutical company remains a viable choice for long-term investors. Let’s explore why.
Looking past the pandemic
Before the pandemic, Pfizer was grappling with an aging product portfolio and sluggish revenue growth. The situation deteriorated when Xeljanz, one of Pfizer’s immunosuppressants, was discovered to have an increased risk of cardiovascular events and cancer compared to other immunology drugs in a post-marketing study conducted early 2021. This led to a boxed warning for Xeljanz.
Such issues prompted Pfizer to make significant changes, including discarding slower-growing units to concentrate on its biopharmaceutical business, and seeking new deals.
The company made a lucrative decision to enter the COVID-19 vaccine market. Besides generating substantial sales from its coronavirus-related portfolio, Pfizer was able to revamp its pipeline and lay the groundwork for a brighter future. The saying, “progress is a slow process,” is certainly applicable to Pfizer’s journey.
Last year, Pfizer received a record number of new product approvals. Although the same level of success may not be achievable this year, Pfizer continues to innovate. It also bought Seagen, an oncology specialist with a promising pipeline, for $43 billion. This partnership could yield several blockbuster products due to Seagen’s innovative potential and Pfizer’s vast resources.
While Pfizer’s current financial results might not look appealing, with its first quarter revenue of $14.9 billion representing a 20% year-over-year decrease, it’s important to note that the company’s exceptional performance in 2021 and 2022 set a high bar. Excluding its COVID-19 portfolio, Pfizer’s top line saw a commendable 11% year-over-year increase.
Despite the unpredictable nature of the COVID-19 market, Pfizer’s revenue is expected to trend upwards as its new products gain traction. Pfizer is more than a “pandemic stock,” with excellent prospects beyond this market.
Patience is key
Although Pfizer may not rebound instantly, long-term investors should remain patient. The innovative company provides a wide range of essential products and offers an attractive forward dividend yield of 5.87%. Over the past decade, Pfizer has increased its payouts by 61.54%, although its cash payout ratio of 182.5% seems unsustainable.
This high ratio can likely be attributed to the company’s recent acquisition spree. However, the company’s management doesn’t seem overly concerned. During the first quarter earnings conference call, CFO Dave Denton stated, “Our strategy consists of maintaining and growing our dividend over time, reinvesting in our business at an appropriate level of financial return, and making value-enhancing share repurchases after de-levering our balance sheet.”
Pfizer has increased its payout during the first quarter, signaling that it’s not just paying lip service to investors. As revenue and net income growth realign, the company’s dividend program should remain robust, and reinvesting these dividends could enhance long-term returns.
Investors shouldn’t overlook Pfizer due to its current financial standing. The pharma giant has a lot to offer to long-term, income-seeking investors.
Is investing $1,000 in Pfizer a good idea right now?
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Prosper Junior Bakiny has no stake in any of the stocks mentioned. The Motley Fool owns and recommends Pfizer. The Motley Fool has a disclosure policy.
The original article titled “1 No-Brainer Dividend Stock Yielding More Than 5% to Buy and Hold Forever” was published by The Motley Fool.
