Pfizer (PFE 0.52%) and Verizon Communications (VZ -1.03%) share at least a couple of things in common. Both stocks are down by double-digit percentages this year. Both are also longtime favorites of income investors.
But which of these dividend stocks is the better pick right now? Here's how Pfizer and Verizon stack up against each other.
The case for Pfizer
Pfizer first began paying dividends in 1938. The big drugmaker has paid a dividend since then for a total of 335 consecutive quarters. Pfizer has increased its dividend every year since 2010. Its dividend yield currently stands at nearly 3.3%.
Of course, dividend track records and yields aren't the only things investors should evaluate. A company's ability to keep the dividends flowing and growing is also important. The good news is that Pfizer's dividend appears to be exceptionally safe.
The drugmaker's payout ratio is under 31% -- a very low level that indicates a strong capability to continue funding the dividend. Pfizer thinks that it will be able to deliver double-digit adjusted earnings-per-share growth through 2025. Even though the company faces the loss of exclusivity for several drugs over the next few years, it still expects to grow in the second half of the decade.
Two factors could especially boost Pfizer's prospects and potentially its dividend payouts as well. If COVID-19 remains a significant global healthcare concern for years to come, Pfizer's future sales of its Comirnaty vaccine and antiviral therapy Paxlovid could exceed expectations. Also, the company's aggressive acquisitions strategy could pay off in a major way.
The case for Verizon
Verizon offers a dividend yield of almost 5.8%, one of the most attractive yields in the telecom sector. The company has increased its dividend for 15 consecutive years. It seems likely that Verizon will soon extend that streak to 16 years.
How safe is Verizon's dividend? The verdict is positive. Verizon's payout ratio of 51% isn't as low as Pfizer's, but it still indicates there's nothing for investors to worry about right now.
Granted, the telecom giant's earnings are headed in the wrong direction. In the second quarter of 2022, Verizon reported net income that was 10.7% lower than the level in the prior-year period. The company's big problem was that revenue fell with anemic growth in postpaid phone customers.
The bright spot in Verizon's Q2, though, was its broadband business. Increased adoption of high-speed 5G networks should continue to serve as a growth driver for the company. Verizon certainly has some problems to fix, but its high dividend yield doesn't appear to be in any jeopardy.
Better dividend stock?
If it's only dividends that you're looking for, Verizon looks like the winner over Pfizer. The telecom company has a higher dividend yield than Pfizer does. It also boasts a longer track record of dividend increases.
But if you look at these two stocks holistically, I think that Pfizer deserves the nod. For one thing, Pfizer's valuation is more attractive than Verizon's. Sure, Verizon is cheap with its shares trading at 8.6 times expected earnings. However, Pfizer's forward earnings multiple of 7.7 is even more of a bargain.
Pfizer's top and bottom lines are also growing, while Verizon's aren't. When a huge company can deliver 53% year-over-year revenue growth and 92% higher adjusted earnings per share as Pfizer did in Q2, that's impressive.
There admittedly is some uncertainty for Pfizer in the coming years as several of its top-selling drugs go off-patent. But the big drugmaker has been able to deliver stronger total returns than Verizon has over the past three years, five years, and 10 years. I suspect this trend will continue.