A Dividend Champ Makes Its Comeback

Pfizer (PFE) is never going to make any growth investor’s buy list. Its three-year revenue growth rate is just a third of big pharma rival Merck (MRK) and miles behind turbocharged biotechs such as Regeneron (REGN) and Celgene (CELG).

But Pfizer is taking shape as an intriguing income investment. Yes, Pfizer, the company that slashed its dividend by 50% in 2009. An Aristocrat it ain’t. Yet since the 2009 slap at income investors, Pfizer looks to be mending some fences with a sharp dividend climb beginning in 2010 that has not put any extra demands on earnings:

PFE Dividend Chart

PFE Dividend data by YCharts

Nor cash. Pfizer’s $34 billion in cash and short-term investments is nearly double where it stood at the beginning of 2010 after it backed up the truck to acquire Wyeth for $68 billion.

And as cash from operations and free cash flow has more than doubled the past three years Pfizer’s cash dividend payout ratio has more than halved.

Net-net that suggests there’s plenty room for continued dividend growth for a stock currently paying out a nice 3%+ current dividend yield.

But that’s just half, or less than half the story. Pfizer has also become a stock buyback machine, pushing its outstanding share count below its pre-crisis low:

PFE Shares Outstanding Chart

PFE Shares Outstanding data by YCharts

The combined value of the current dividend yield and the share repurchases is a shareholder yield of more than 10%.

That’s the fifth highest shareholder yield among healthcare sector stocks in the S&P 500. The four companies with a higher shareholder yield -- Mylan (MYL), St. Jude Medical (STJ), Abbott Labs (ABT) and AmerisourceBergen (ABC) -- all have sub 2% dividend yields, relying more on buybacks.

Yes, there is more debt on the books. Pfizer has reduced its long-term debt by $10 billion since late 2009, but debt is still nearly double where it was pre-crisis. But another sign of its strengthening balance sheet is the fact that Pfizer’s debt-to-equity ratio has dropped from 0.74 in mid 2009 to below 0.50 today.

There are questions about Pfizer's new-drug pipeline, covered twice in recent months by YCharts contributing editor David J. Phillips. The company, however, has worked hard to extend the life of medicines coming off patent, notably Lipitor.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.



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