Pfizer Inc. (NYSE:PFE) is one of the largest pharmaceutical companies in the world. It’s also one of the best dividend stocks.
Unfortunately, over the past year, Pfizer stock is down about 12% due to ongoing debates in Washington over how much to cap the price of prescription drugs.
And it’s not just Pfizer stock that is suffering. Investors in general are worried that earnings of drug companies will take a hit if new laws are passed restricting drug prices. The NYSE ARCA Pharmaceutical Index is down almost 11% in the same time.
But the downswing in Pfizer stock presents an opportunity for income investors, as Pfizer’s dividend yield has become very attractive. Here are three reasons why Pfizer stock could make a worthy addition to an income investor’s portfolio.
Growth has stalled for Pfizer over the last few years, especially since losing exclusivity rights to its best-selling drug, “Lipitor.” Sales for the cholesterol-lowering drug are now a shadow of what they were. They peaked at $9.0 billion annually at one point for the company, compared to about $2.0 billion in fiscal year 2014. (Source: “Pfizer’s Projected $3B Drug: Name Will Shock You,” Forbes, July 9, 2013; http://www.forbes.com/sites/ycharts/2013/07/09/pfizers-projected-3b-drug-name-will-shock-you/#1bde3d1232a2.)
But there is help on the way to replace these lost sales. Last November, Pfizer and Allergan plc (NYSE:AGN) announced a merger. The deal will bring a host of new drugs in the late stage clinical process and will bring about $2.0 billion in operating efficiencies within three years. (Source: “Pfizer, Allergan Confirm $160 Billion Merger Deal,” Fortune, November 23, 2015.)
Pfizer says the deal will boost earnings by more than 10% in 2019 and by almost 20% in 2020. The re-ignition in earnings is good news for income investors, since the extra cash flow will make sure shareholders keep getting their dividend paychecks.
The merger with Allergan is also going to have positive tax implications for Pfizer, which will reduce costs and increase the company’s bottom line. Pfizer currently has a U.S. tax rate of about 23.5%. The deal is structured in such a way, that Pfizer will be able to move its headquarters to Dublin when the deal is completed, which is where Allergan is based. Pfizer has said that the merger will bring its tax rate down to 17.0% or 18.0% by the end of the first year after the deal is closed, leading to about $1.2 billion in tax savings. (Source: “Pfizer’s Allergan Deal is an Even Bigger Tax Dodge Than It’s Claiming,” Fortune, November 24, 2015.)
Pfizer is a good choice for income investors who want a steady, reliable dividend. Pfizer has paid a dividend to shareholders for the last 77 years and has increased its dividend every year for the last six years. In the last five years, PFE stock has increased its dividend about 9.2% annually, on average.
Pfizer stock is currently paying a yearly dividend of approximately $1.20 per share and it has a juicy yield of 4.04%.
The Bottom Line on Pfizer Stock
Pfizer is a solid pick to watch for any income investor looking to add a new investment to their portfolios. Given the company’s track record, you might want to take a closer look at Pfizer stock.