To grow an investment to $1 million, you need patience, plus a decent amount of money to put into a stock in the first place. For instance, if you were only to invest a nest egg of $5,000, you would need the stock to become a 200-bagger in order to reach that mark. Over a 25-year stretch, that would require average annual returns of close to 24%.
But if you were to invest $50,000, then it would take a 20x return to hit that million-dollar mark. That would require more-realistic annual gains of 13% over the same theoretical 25-year time period.
That's a lot of money to invest in one company, but if it's the right one, it could result in a big payoff. One stock that has been performing incredibly well in the past few years and has the potential to be a solid long-term buy is healthcare giant Pfizer (PFE -1.96%). It has strong fundamentals, and long-term gains are likely. But could it be a millionaire-making investment?
Growth opportunities plus dividend income could improve your chances
Pfizer is leaner and more focused on growth now after spinning off its off-patent business, Upjohn, in 2020. But the company still pays an attractive dividend yield of more than 3%, which is higher than the S&P 500 average dividend yield of less than 1.4%. That payback can go a long way toward boosting your overall profits, especially if that dividend income is reinvested back into the company.
In the past 10 years, Pfizer's stock has done a fairly good job of mirroring the markets, with total returns (which include dividends) coming in just a bit below the S&P 500.
Those 256% returns average out to 13.6% on an annual basis, which is more than what you would need to consistently generate in order to turn a $50,000 investment into $1 million over 25 years. The caveat, of course, is that it could be difficult for Pfizer to keep up that kind of consistency over time.
But this healthcare stock should arguably be at an even higher level than where it is now. At just 13 times earnings, it's trading for far less than the average stock in the Health Care Select Sector SPDR Fund (XLV -0.60%), where investors are typically paying a multiple of 23. Investors aren't paying a premium for Pfizer because its revenue is being heavily propped up by sales from its COVID-19 vaccine and pill, which together will account for roughly half of the company's expected $100 billion total revenue. The concern is that there could be a steep decline in the years ahead.
But with health officials now able to administer second booster shots for select groups, it's difficult to tell how long COVID-19 will be a problem. The longer that the pandemic lasts, the more Pfizer will see its cash balance grow. As illustrated in the below chart, the company's operating cash flow has surged during the pandemic to reach levels well above where it has been previously.
Within the past year, Pfizer's free cash flow at one point topped more than $10 billion. That kind of cash generation gives a company many options to grow its business, whether it's through acquisitions or just investing more in research and development. As of Feb. 8, Pfizer had 89 programs in its pipeline, including 27 that were in phase 3 trials. Putting more money into the company's long-term growth can lead to stronger financials and numbers that are less dependent on COVID-19 vaccines.
Is the stock a potential millionaire-making investment?
If you're comfortable with investing $50,000 into Pfizer, then there's certainly the possibility that it can turn that into $1 million over 25 years. I wouldn't count on 13% gains from the stock alone over more than 20 years, but when combined with its dividend, the odds become much more favorable.
The company's strong track record over the years should give investors confidence that even post-pandemic, there will be growth opportunities ahead. Today, it has multiple blockbuster drugs that generate more than $1 billion in revenue, including Ibrance, Eliquis, Xeljanz, and others. As booster shots and the need for a coronavirus vaccine could linger beyond this year and next, Pfizer is no rush to make up $50 billion in revenue.
Pfizer is one of the best healthcare stocks you can buy for the long haul. And if you're willing to be patient, it might generate some incredible gains for your portfolio.