After years of struggling to overcome headwinds caused by patent expiration, biopharma giant Pfizer (NYSE:PFE) may be positioned perfectly to return more money to investors through dividends.
In this clip from The Motley Fool's Industry Focus: Healthcare, analyst Kristine Harjes and Todd Campbell explain how Pfizer's market-beating 3.7% dividend could climb because of Pfizer's gold medal performance.
A full transcript follows the video.
This video was recorded on Feb. 14, 2018.
Kristine Harjes: So we want to do an Olympics-themed show today, and talk about, if we could give out gold medals for healthcare companies, what would we give them out for and which companies would win? Todd, do you want to kick us off?
Todd Campbell: Sure. There's so many events at the Olympics. If we tried to create categories for as many events as there are at the Olympics, our listeners would probably never finish the show.
Harjes: Yeah, we would be here all day.
Campbell: Yeah. I picked out three. I think you might have picked out a similar number. Mine, quickly, were gold medal for dividend stocks, gold medal for marijuana stocks, and gold medal for big blue-chip biotechs.
Harjes: I also have three. I'll be doing a financial fortitude contest, and also a health tech, and also, because the Olympics are international in scope, I'll be picking my favorite international as a non-U.S. healthcare stock. We'll go back and forth, we'll pause for a break in the middle. Do you want to kick us off with a dividend stock?
Campbell: Sure. This was a little bit of a tough competition that was furiously fought. In the end, I ended up awarding the gold medal to Pfizer.
Harjes: It was a real nail-biter.
Campbell: It was a nail-biter, it was. It was right down to the wire, whose foot got over the finish line first. I almost went with J&J, because J&J has such a remarkable track record of increasing its dividend, I think 54 years in a row. But I ended up going with Pfizer for a couple of different reasons. Pfizer doesn't have that same long track record, but if you look at since 2011, when it had to cut its dividend because it had lost patent protection on Lipitor and was trying to conserve cash, but if you look since they did that, they've actually increased their dividend by more than J&J, I think it's about 30% vs. J&J's 27%. With their most recent increase of 6.25%, they're now yielding, I want to say it's 3.7% right now, which of course trounces the market.
A lot of times, you look at high dividend-yielding stocks and you get a little bit nervous. You worry that they're trading at a high dividend yield because they're making up for some other problem. But I don't think that's the case anymore with Pfizer. I think the Lipitor headwind was significant. It really dragged down the company's performance since 2011. But we're now at a point in 2018 where all of the hard work that's been done by Pfizer to cut costs and revamp its pipeline, all of that is about to start paying off. They came out with their goals for 2018, and they think that they're going to go from, they were pretty much breakeven last year, as far as revenue growth. They think this year, the top line is going to grow 4%, and they think their bottom line is going to grow 11%. Now, in a company as big as Pfizer, generating that much additional cash every quarter, that should be very, very dividend-friendly over time. So, they get my gold medal for the efforts they've done over the recent years to put them in a position for growth going forward.