In recent weeks, we've seen waves of good news taking a variety of stocks to all-time highs. But there's one healthcare stalwart that hasn't benefited: Pfizer (PFE -0.15%).
Despite the successes of the past few months, including the release and rapid distribution of the company's COVID-19 vaccine and impressive growth in its other therapeutics, Pfizer has fallen off its all-time high of $42.56 a share on Dec. 8 and into a very attractive valuation. I want to show you why this pharma giant deserves a place in your portfolio and should be a stable holding for the long term.
Demonstrating leadership once again
Pfizer is one of the four iconic leaders of American pharmaceuticals, along with Johnson & Johnson, Merck, and Bristol Myers Squibb. Since its founding in 1849, Pfizer's 170-year-plus journey has included the development of several breakthrough drugs that have succeeded not just domestically but internationally as well. Over the past few decades, Pfizer has been the name behind such well-known products as Advil, Bextra, Diflucan, and Viagra, not to mention some big names in consumer health, including Chapstick and Preparation H. And in 2020, Pfizer partnered with German company BioNTech to create a COVID-19 vaccine.
This vaccine comes with terrific financial prospects for Pfizer, with management expecting to make $15 billion in 2021 from inoculations. Given that 2021's overall expected company revenue is between $59.4 billion and $61.4 billion, the vaccine should account for about a quarter of the total.
Dividends upon dividends
Pfizer's stock has seen a run-up over the past year, with good news being priced in again and again. The shares hit their all-time high of $42.56 on Dec. 8, but since Pfizer's vaccine was approved for emergency use on Dec. 11, that price has dropped to about $33 today.
During the fourth quarter of 2020, management announced a 3% dividend increase for fiscal 2021, marking its 11th consecutive year of dividend increases. That leaves the current dividend yield at about 4.66% -- quite impressive compared with the 1.42% offered by an S&P 500 ETF.
Pfizer stockholders as of November will have recently received shares from its newly created entity, Viatris, which was formed when the company spun off its Upjohn unit to merge with Mylan. Viatris focuses on branded generic drugs and biosimilars. Shareholders received 0.124079 shares of Viatris common stock for every one share owned of Pfizer, and Viatris should start paying a dividend in the second quarter of 2021.
Pfizer will be reducing its payout when this happens, but if you hold both, your total dividend paid should stay the same. If you don't hold both, you'll see a slightly reduced payout on your Pfizer shares to account for the change.
Poised for progress
With Upjohn gone, Pfizer's focus on the future is evident in many of its newer products. The company's current lineup of drugs includes blockbusters such as breast cancer treatment Ibrance (which brought in $1.4 billion in 2020 alone) and blood thinner Eliquis ($1.3 billion), as well as rare-disease drugs such as Vyndaqel ($429 million). Each of these drugs is generating strong growth, with sales up 14%, 12%, and 96%, respectively, between 2019 and 2020.
Leading the charge with its coronavirus vaccine and increasing sales of several new drugs, Pfizer seems to be hitting on all cylinders. The company is trading at an attractive price-to-earnings ratio of 10 right now while offering a juicy dividend. To align with its historical price-to-earnings (P/E) ratio of more than 13, the stock will need to hit $40 a share -- this presents an almost 28% upside for healthcare investors who buy today. Looking past COVID-19, this new and improved pharma giant has the potential to deliver outstanding returns well into the future.