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The end of a short-lived, COVID-related revenue surge has brought Pfizer’s stock lower.
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But sellers have ignored all the developmental work this pharma icon has going on.
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At the very least, the drug stock’s current dividend payment is well protected.
The average blue chip dividend stock’s current yield is somewhere in the ballpark of 3% to 4%. Therefore, to see one paying out nearly 7% of its value is as suspicious as it is impressive.
When the underlying dividend is being paid out by a pharmaceutical powerhouse like Pfizer (NYSE: PFE), however, it’s the real (but underestimated) deal. This company has not only paid a quarterly dividend like clockwork for decades now, but has raised its annualized per-share dividend payment for 16 consecutive years.
What gives? In short, Pfizer’s stock has performed poorly since the wind-down of the COVID-19 pandemic, which ended demand for its coronavirus vaccine as well as its antiviral drug Paxlovid. The drugmaker’s annual top line is now roughly 40% below 2022’s peak of a little more than $100 billion, for perspective. The market’s priced in this revenue decline pretty aggressively — perhaps too aggressively, in fact.
While Pfizer’s research and development work was certainly delayed by the COVID-19 contagion, leveraging its 2023 acquisition of Seagen, the company hopes to have at least eight new blockbuster drugs — drugs that produce $1 billion or more in annual sales — in its portfolio by 2030. There could be more new drugs than this, of course, with many of them capable of generating well in excess of $1 billion worth of annual revenue.
Indeed, Pfizer ultimately expects on the order of $20 billion and $25 billion worth of new revenue to be added between now and then, supporting continued dividend growth.
There’s still risk here to be sure. Much can change with its R&D efforts in the meantime, for instance, just as much can change for the pharmaceutical industry. With such a sizable yield, though, the bulk of this risk already appears to be priced in.
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