Pfizer: A High-Yield Stock Worth Considering for Long-Term Growth

High-yield dividend stocks have always been a smart choice for building wealth among investors. Typically, these companies offer yields above 3% and have historically outperformed the S&P 500 over the long term, especially when dividends are reinvested. This success comes from the power of compounding returns and the likelihood that high-yield stocks are undervalued for certain periods.

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Assessing Pfizer’s Current Market Position

Pfizer (NYSE: PFE) has recently caught attention as a high-yield contender. Its stock has dropped more than 30% in the past three years, which has resulted in a notable dividend yield of 5.73%. This is significantly above the historical average yield of about 3.3%.

While the market has valid concerns regarding Pfizer’s declining sales from COVID-19 products and ongoing skepticism about its recent acquisitions, history shows that pharmaceutical companies can rebound. Any company in this sector has the potential to transform from underperformer to leader with a successful drug development outcome.

Given this context, I am considering increasing my investment in Pfizer for the long term. Let’s explore what makes Pfizer an interesting opportunity for serious investors.

High Dividend Yield and Payout Insights

Pfizer’s current dividend yield of 5.73% far exceeds the S&P 500 average of 1.35%. While its payout ratio stands at 443%, suggesting possible unsustainability, this high figure can largely be attributed to various temporary factors, such as falling COVID-19 product sales and recent mergers. Historically, Pfizer’s payout ratio has averaged around 50%, a more sustainable level significantly lower than the 75% mark that often indicates a dividend cut.

Moreover, with a forward price-to-earnings (P/E) ratio of 9.5x projected earnings for 2026, the stock presents a considerable safety margin. This low valuation may offer upside potential if Pfizer efficiently executes its growth strategies while providing a buffer against broader market downturns.

Potential within Pfizer’s Development Pipeline

In terms of development, Pfizer has over 100 programs underway, with 33 advancing to late-stage trials. Its recent $43 billion acquisition of Seagen highlights its commitment to expanding its cancer drug offerings, with projections indicating Seagen’s portfolio could generate $10 billion in revenue by 2030.

Additionally, Pfizer’s pipeline includes promising treatments in fields such as immunology, rare diseases, and vaccines, presenting multiple avenues for future growth.

Short-Term Challenges as Investment Opportunities

Despite facing short-term obstacles from falling COVID-19 sales, the core of Pfizer’s business demonstrated resilience, with overall revenue rising 14% in Q2 2024 when excluding its COVID-related products.

The company is proactively cutting costs, aiming for at least $4 billion in savings by the end of 2024. While patience may be necessary as it navigates these pipeline programs and adjusts from COVID-related sales, the combination of its high yield, low valuation, and promising pipeline remains compelling for long-term investors.

Innovations Beyond COVID-19 Vaccines

Pfizer continues to innovate in the vaccine space, recently launching Abrysvo, targeted at respiratory syncytial virus (RSV) prevention. Although demand for RSV vaccines has been moderate this year due to regulatory hurdles, analysts predict that Abrysvo could reach $2 billion in annual sales at its peak.

This diversification into new vaccine products like Abrysvo is crucial for mitigating losses from declining COVID-19 sales, providing steady revenue while developing high-value treatments in other therapeutic areas.

Cost Management Strategies

To adapt to its changing revenue landscape, Pfizer is implementing a manufacturing optimization program, which aims for $1.5 billion in savings by 2027. This is part of a broader initiative targeting $4 billion in overall cost reductions.

These strategies are expected to enhance profit margins as Pfizer’s core business expands and new products gain traction, paving the way for increased dividends and potential stock buybacks as financial stability returns.

Considerations and Risks for Investors

Investors should remain aware of risks involved with Pfizer. The company’s debt-to-equity ratio of 0.78 indicates a significant financial commitment following the Seagen acquisition. Success in fully integrating Seagen and realizing projected revenues is essential for Pfizer’s growth.

Moreover, the company may face a patent cliff in the coming years that could impact products like the breast cancer drug Ibrance and the blood thinner Eliquis. With the normalization of COVID-19 sales, its growth outlook poses additional uncertainties. Therefore, careful position sizing is advisable given these concerns.

Long-Term Advantages for Patient Investors

For those with a multiyear investment strategy, Pfizer offers a promising opportunity. Its combination of high yield and low valuation provides a buffer against market volatility, while its robust late-stage pipeline opens doors to potential growth drivers.

As a long-term investment, Pfizer is well-positioned to benefit from worldwide demographic trends that increase healthcare spending. Its strong cash flow supports ongoing dividend growth and reinvestment strategies. For investors willing to endure short-term fluctuations, Pfizer could yield substantial returns in the future.

Should You Invest $1,000 in Pfizer Now?

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George Budwell has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.