Energy and healthcare. They've been the two best-performing sectors in the stock market this year. They've also ranked as favorites for income investors for decades.
Chevron (CVX -1.05%) and Pfizer (PFE 1.50%) stand out as two of the biggest and most successful companies in the energy and healthcare sectors, respectively. Which is the better dividend stock right now? Here's how Chevron and Pfizer stack up against each other.
The case for Chevron
There's no question that Chevron has and still does offer a juicy dividend yield. The oil and gas giant's yield has topped 4% throughout most of the past three years. The yield is now close to 3.6% -- only lower because Chevron stock has performed remarkably well.
Chevron also ranks as a Dividend Aristocrat, with 35 consecutive years of dividend increases. It shouldn't have any problems keeping that streak going with a low dividend-payout ratio of under 37%, coupled with exceptionally strong earnings growth.
The company's bottom line seems more likely to improve than deteriorate over the near term. Chevron CEO Michael Wirth thinks that there's more upside potential for oil prices. If he's right, there should be significant upside potential for his company's share price, as well.
But what about the longer-term prospects for Chevron? There's a major push to reduce carbon emissions. However, the demand for energy generated from fossil fuels will still probably continue to grow, at least over the next couple of decades. Chevron is also investing in renewable energy and recently completed an acquisition of Renewable Energy Group.
The case for Pfizer
Pfizer's dividend yield stood above 4% throughout much of the past three years, as well. The drugmaker's yield is now nearly 3.2%. This lower dividend yield is due to Pfizer's impressive stock performance last year. Unlike Chevron, though, Pfizer hasn't been able to sustain its momentum in 2022.
Although Pfizer isn't a Dividend Aristocrat, it's paid a dividend for 335 consecutive quarters and has increased its dividend payout for 12 consecutive years. Over the past 10 years, Pfizer's dividend has grown by nearly 82%. That's well above Chevron's overall dividend increase of 58% during the same period. Pfizer's payout ratio of 30.5% is also lower than Chevron's.
Pfizer CFO Dave Denton said in the company's Q2 conference call, "Our second priority is maintaining and growing Pfizer's dividend." What's the No. 1 priority? Investing in science and innovation.
That's exactly what income investors should want, though. Pfizer's commitment to research and development should help keep the company near the top of the biopharmaceutical industry for a long time to come. This, in turn, should translate to reliable and growing dividends.
Better dividend stock?
Which of these stocks is the better pick for income investors right now? I think that Chevron deserves the nod over the near term.
Both companies' dividends appear to be very safe. However, Chevron offers a higher dividend yield than Pfizer does. Probably the only way Pfizer's yield will overtake Chevron's anytime soon is if Chevron stock soars -- which is a possibility.
For investors with horizons that extend into the next decade, Pfizer is the better choice. Pfizer's long-term prospects should be better than Chevron's -- even with the big-pharma company facing a patent cliff within a few years.