Dividend investors would be well-advised to invest in proven businesses. The highest quality pharma stocks boast top-notch product portfolios with even deeper pipelines.

Pfizer (PFE -1.82%) arguably fits this profile neatly. Yet the stock has dipped 13% year to date, which appears to make it a great buying opportunity. Let's dig into Pfizer's fundamentals and valuation to find out why. 

An all-around solid business

In recent years, Pfizer has become best known for product offerings designed to tackle COVID-19. Its COVID vaccine, known as Comirnaty and co-owned with its German partner BioNTech (BNTX -0.61%), generated a record total of $59.1 billion in revenue in 2021. Pfizer's COVID anti-viral drug marketed as Paxlovid has also established itself as a leader. 

In late July, the company reported its financial results for the second quarter ended June 30. And Pfizer certainly didn't disappoint, exceeding the analyst consensus for revenue and non-GAAP (adjusted) diluted earnings per share (EPS) during the quarter. 

The company recorded $27.7 billion in revenue in the second quarter, which was a 46.8% growth over the year-ago period. This was significantly higher than the $26.2 billion in revenue that analysts were expecting for the quarter. What was behind Pfizer's eighth revenue beat out of the last 10 quarters? 

Unsurprisingly, Pfizer's COVID-19 products were once again the primary growth driver for the company in the second quarter. Comirnaty's revenue surged 12.9% higher year over year to $8.8 billion during the quarter. Adjusting for unfavorable foreign currency translations that were the result of a stronger U.S. dollar, the drug's revenue was up 20% for the quarter. 

And Paxlovid logged a whopping $8.1 billion in revenue in the second quarter. This was all additional revenue since the therapy didn't receive Emergency Use Authorization from the U.S. Food and Drug Administration until last December. 

Pfizer's non-COVID product portfolio performance wasn't flashy during the quarter. But it still produced $10.8 billion in revenue for the company. Factoring in foreign currency headwinds, this was up 1% over the year-ago period. 

This was led by double-digit percentage revenue growth in the company's anti-coagulant drug co-owned with Bristol-Myers Squibb (BMY -1.71%) called Eliquis and the rare heart disease drugs Vyndaqel/Vyndamax. 

Pfizer posted $2.04 in adjusted diluted EPS in the second quarter, which was a blistering 92.5% year-over-year growth rate. This came in ahead of the $1.95 in adjusted diluted EPS that analysts were projecting for the quarter. And it was the eighth quarter out of the past 10 quarters that the company has outperformed the analyst-adjusted diluted EPS consensus. 

Pfizer's significantly higher revenue base and a 1,010-basis-point expansion in the non-GAAP net margin over the year-ago period to 42% led to this staggering adjusted diluted EPS growth. This was only slightly offset by a 0.6% year-over-year increase in the outstanding share count to 5.7 billion during the quarter. 

A patient attends a doctor appointment during the COVID-19 pandemic.

Image source: Getty Images.

A dividend with growth left in the tank

Pfizer can provide investors with a 3% dividend yield, which is double the S&P 500 index's 1.5% yield. And as appealing as this dividend is to income investors, it is far from being a yield trap. 

This is because, for one, Pfizer's pipeline of more than 100 projects in clinical development has analysts believing the company's elevated earnings will remain stable over the next five years. Secondly, the dividend payout ratio will come in just below 25% in 2022. This is a large enough margin of safety for Pfizer to not only continue paying its dividend but also somewhat expand its payout ratio. And all the while, it still gives the company more than enough retained earnings to work with to execute share repurchases, complete bolt-on acquisitions or new partnerships, and pay down debt.

The valuation is dirt cheap

Pfizer's business is fundamentally healthy. But there seems to be a disconnect between its fundamentals and stock price.

This is supported by the fact that Pfizer's forward price-to-earnings (P/E) ratio of 9.5 is considerably lower than the drug manufacturers' general industry average forward P/E ratio of 11.2. The stock is also deeply discounted compared to its historical valuation. For instance, Pfizer's price-to-sales (P/S) ratio of 2.8 is far below its 10-year median P/S ratio of 3.9. This arguably makes the stock a smart buy for income investors.