Key Points
Pfizer has long been a solid dividend payer, having raised its dividend annually for 16 years.
Its yield is high because the stock price has fallen in recent years.
That has given it an appealing valuation.
I can think of more than a few reasons why someone might want to invest in Pfizer (NYSE: PFE), the pharmaceutical giant. The best one, for me at the moment, is its huge dividend yield -- 7% as of Friday. Consider that the best high-yield bank savings accounts were recently offering interest rates between 4% and 5%, and that Pfizer is offering shareholders much more.
Better still, if interest rates drop, as they're generally expected to over the coming year, the interest income you'll get from savings accounts will likely drop, too -- while healthy and growing dividend payers tend to increase their dividends over time.
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The table below, put out by the Hartford Funds, also offers a powerful reason why investors might want to consider dividend-paying stocks.
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Dividend-Paying Status
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Average Annual Total Return, 1973-2024
|
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Dividend growers and initiators
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10.24%
|
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Dividend payers
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9.20%
|
|
No change in dividend policy
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6.75%
|
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Dividend non-payers
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4.31%
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Dividend shrinkers and eliminators
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(0.89%)
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Equal-weighted S&P 500 index
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7.65%
|
Data source: Ned Davis Research and Hartford Funds.
Clearly, dividend-paying stocks can be powerful investments. Not every dividend payer is attractive, though. So -- should you invest in Pfizer? For me, the answer is yes, in large part due to the dividend.
Note, though, that the dividend yield is huge because the stock has slumped. It's actually down more than 35% over the past three years (as of October 28) -- a period when the S&P 500 index rose 84%.
Why the drop? Well, one key reason is that while Pfizer's business boomed in the early days of the COVID-19 pandemic, as people rushed to get its vaccine and its Paxlovid treatment, such demand has dropped considerably. But like any good pharmaceutical business, Pfizer has a pipeline of drugs in development -- some of which may turn out to be tomorrow's blockbusters.
It's also been an acquirer of other companies, which leads me to a warning: After it bought Wyeth in the past, it trimmed its dividend. It's now buying weight-loss drug developer Metsera, which could lead to another dividend cut. A cut may not happen, though, and even if the payout is halved, that would leave it yielding a still-respectable 3.5%.
Pfizer may not be a fast-growing growth stock, but it's recently trading at a fairly low valuation. Its recent forward-looking price-to-earnings (P/E) ratio of 8 is well below the five-year average of 10 -- and both of those numbers are on the low side. So if you're patient and prepared to keep an eye on the company's developments, you can probably collect a hefty dividend over many years to come.
Should you invest $1,000 in Pfizer right now?
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Selena Maranjian has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
