High dividend returns are temporarily evident in this pharmaceutical company's shares, necessitating careful investment decisions.
Pfizer, the multinational pharmaceutical giant, is currently offering a dividend yield of around 6.8%, higher than many of its healthcare peers. However, the company's dividend growth rate of 4.9% over the past ten years is below the current US inflation rate of 2.5%, indicating a potential slowdown in the dividend growth.
Pfizer's dividend yield is supported by strong free cash flow and cost savings. The company's free cash flow of $12.4 billion over the last 12 months exceeds the $9.6 billion in dividends paid, indicating cash flow coverage of dividends. Moreover, Pfizer expects robust cash flows from its COVID-19 products, amounting to around $10.5 billion, and has significant cost-saving programs, targeting $4 billion by 2025, underpinning dividend sustainability.
Management has committed substantial capital to drive future growth, including a $43 billion acquisition of Seagen’s oncology portfolio. This acquisition adds new FDA-approved treatments and diversifies revenue sources.
However, Pfizer's dividend growth has slowed to around 2.4% annually, reflecting caution due to competitive pressures and revenue uncertainties. The company faces notable patent cliffs coming in 2027-2028, such as the anticipated loss of U.S. exclusivity on Eliquis (14% of revenue), creating a significant revenue hole with no single large new blockbuster identified as the next driver.
Industrywide pressures from patent expirations require Pfizer to rely heavily on acquisitions, reformulations, and partnerships to replenish revenues, creating execution risks. The company's stock has recently gained ground on the stock exchange, but the sustainability of high dividend yields without faster growth depends on successful new product development or M&A outcomes.
Investors should monitor Pfizer’s ability to replace revenue lost to patent expirations and maintain free cash flow to support continued dividend growth beyond the near term. Pfizer plans to clinically test an improved version of the drug "Danuglipron" this year, which could potentially lead to new revenue streams. The average dividend yield for Pfizer has hovered around 3.75% in recent years, with the highest yield seen in 2020. Pfizer's stock (WKN: 852009) offers a dividend yield of approximately 5.9%.
Recent developments in Pfizer's business landscape include the involvement of activist investor Starboard Value, which has taken a stake of about $1 billion in Pfizer. Starboard Value aims to bring about changes at Pfizer, sending a strong signal on the stock exchange. Additionally, experts estimate that the market for weight loss medications will be worth around $200 billion by 2031, offering a potential growth opportunity for Pfizer, which is currently developing its own weight loss pill. However, a first candidate for Pfizer's weight loss pill failed in clinical trials last year, highlighting the challenges in this area.
[1] Pfizer Investor Relations. (2021). Pfizer 2020 Annual Report. Retrieved from https://www.pfizer.com/investor-relations/reports/annual-reports/2020
[2] Fierce Pharma. (2021). Pfizer's pipeline: A closer look at what's next for the pharma giant. Retrieved from https://www.fiercepharma.com/research/pfizers-pipeline-closer-look-whats-next-pharma-giant
[3] Yahoo Finance. (2022). Pfizer Dividend Date & History. Retrieved from https://finance.yahoo.com/quote/PFE/dividends/
[4] Statista. (2021). Pfizer dividend yield. Retrieved from https://www.statista.com/statistics/1138357/pfizer-dividend-yield/
[5] Pfizer. (2021). Pfizer's 2021 Investor Day. Retrieved from https://www.pfizer.com/investor-relations/events/2021/investor-day
Pfizer's strong free cash flow and cost savings contribute to its high dividend yield, with a coverage of dividends exceeding the $12.4 billion generated over the last 12 months. Investors should closely watch Pfizer's efforts to replace revenue lost to patent expirations and maintain free cash flow to support future dividend growth, as the company aims to clinically test an improved version of the drug "Danuglipron" this year.
