Is Pfizer the Right Stock to Retire With?

Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. Let's figure out what makes a great retirement-oriented stock, then examine whether Pfizer (NYSE: PFE  ) has what we're looking for.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Pfizer.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $152 billion Pass
Consistency Revenue growth > 0% in at least four of past five years 4 years Pass
  Free cash flow growth > 0% in at least four of past five years 2 years Fail
Stock stability Beta < 0.9 0.71 Pass
  Worst loss in past five years no greater than 20% (17%) Pass
Valuation Normalized P/E < 18 14.13 Pass
Dividends Current yield > 2% 4.2% Pass
  5-year dividend growth > 10% (1.1%) Fail
  Streak of dividend increases >= 10 years 2 years Fail
  Payout ratio < 75% 70.7% Pass
  Total score   7 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

Pfizer scores a respectable seven points. The company has let down investors on the dividend front over the past few years, but apart from that, it's been a solid performer with good prospects for the future.

With internal growth slowing, Pfizer has had to turn to acquisitions to keep its pipeline healthy. Its monster acquisition of Wyeth in 2009 marked the beginning of major consolidation in the industry, with Merck (NYSE: MRK  ) answering later in the year with its buyout of Schering-Plough. Yet that acquisition also forced Pfizer to cut its dividend, which has only recently started moving back up. That ended a 41-year streak of higher dividends and makes Johnson & Johnson (NYSE: JNJ  ) and Abbott Labs (NYSE: ABT  ) , whose streaks are still alive and payout ratios lower, look relatively attractive by comparison.

Pfizer also faces the challenge of maintaining its pipeline. With the coming loss of patent protection on major drugs, Pfizer needs both success in drug development as well as continuing acquisitions. Its planned buyout of King Pharmaceutical (NYSE: KG  ) is a step in that direction, but given how big Pfizer is, it will take many similar pick-ups to keep the pace.

Despite concerns, Pfizer has done well for investors, limiting losses in the recent bear market and remaining committed to a dividend. Over the long haul, the stock should make a useful addition for retirees and other conservative investors.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

Add Pfizer to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Pfizer is a Motley Fool Inside Value choice. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is also a Motley Fool Income Investor pick. The Fool owns shares of Johnson & Johnson. Motley Fool Alpha owns shares of Abbott Laboratories and Johnson & Johnson. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 11, 2011, at 2:55 PM, Boardman3 wrote:

    I've had Pfizer for years and plan on keeping it for my heirs.

  • Report this Comment On February 11, 2011, at 3:03 PM, pmarquis wrote:

    Love the articles you write: " Is ____the right stock to retire with." I can find some of the info from Yahoo Finance, Morningstar, and, but is there an easy way to find Revenue growth(>0% 4 of past 5 yrs), Free cash flow (>0% 4 of past 5 yrs), and Worst loss in past 5 yrs no greater than 20%? Trying to decide between ABT, and PG.

  • Report this Comment On February 11, 2011, at 4:53 PM, TMFGalagan wrote:

    @pmarquis -

    Thanks for the comments! I use a proprietary data service along with a custom spreadsheet to help me calculate metrics - it would be pretty tough to replicate without that source. But you can expect to see PG and ABT covered in coming weeks, so stay tuned!


    dan (TMF Galagan)

  • Report this Comment On February 11, 2011, at 8:18 PM, NovaB wrote:

    How about ING, instead? Closed today at 12.18 but boasts a 1.99 dividend. Or GKK at 4.89 with a 2.52 dividend. I have owned NLY for almost 10 years and have over twice the shares I started with.

  • Report this Comment On February 12, 2011, at 9:20 PM, carllyn wrote:

    I have held some Pfizer stock since the buy out of Upjohn- Pharmacie Co. Prior to being bought out the Upjohn-Pharmacie stock price in The late fall of 1997 was about $56 per share.

    Until recently Pfizer Stock has done little but tanked, it is finally up from the $15 area but has a long way to go to reach its peer group. I am waiting to see if the price falls back and the CEO gets another golden parachute or if the value will stablize and move forward from here. Happy Valentines day

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